Investors are hearing more about sustainable investing (SI), which isn’t the same as but complements the more publicized environmental, social, and governance (ESG) trend. Some ETFs, including the Global X Conscious Companies ETF (NasdaqGM: KRMA), marry both concepts.
KRMA, which turns four years old in July, tries to reflect the performance of the Concinnity Conscious Companies Index, which tracks companies that achieve financial performance in a sustainable and responsible manner and exhibit positive Environmental, Social and Corporate Governance (ESG) characteristics. KRMA has a 0.43% expense ratio.
“Sustainable investing (SI) is an investment approach that considers environmental, social, and governance (ESG) factors, alongside financial ones, in the dual pursuit of competitive returns and positive impact for people and planet,” said Global X in a recent note. “Companies and individuals alike recognize that corporate behavior impacts society and the environment.”
Making The KRMA Call
ETFs and other strategies that incorporate Economic, Social and Governance, or ESG, principles have been quickly gaining traction as a way to help investors align portfolio investments with their core values and still achieve long-term goals.
KRMA is far from the typical ESG ETF that excludes sin stocks, gun manufacturers and gambling companies, among others. Rather, KRMA’s methodology focuses on stakeholders, such as: Customers, Suppliers, Stock & Debt Holders, Local Communities, and notably, Employees, according to Global X.
The strategy draws on dozens of sources to identify companies that have demonstrated a long term focus on creating positive outcomes for five stakeholder groups, including employees, customers, communities, suppliers, and stock and debt holders, according to Global X.
KRMA has a high bar for inclusion and holds 161 stocks, a smaller roster than many traditional broad market funds. However, the fund’s annualized volatility is slightly less than that of the S&P 500 and its Sharpe ratio is higher than the S&P 500’s.
“Prudent investing entails careful consideration of the factors that paint companies’ risk/reward profiles, and it’s becoming increasingly clear that E, S and G factors can be financially material,” notes Global X. “Their inclusion in investment processes, called integration, paints holistic investment rationales geared to capture long-term value and generate a positive impact.”
The technology and financial services sectors combine for 35% of KRMA’s weight while healthcare and consumer discretionary combine for another 26%. None of its holdings have weights of 1% or more.
For more on thematic ETFs, please visit our Thematic Investing Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.