Ethical investing has been rising in popularity over the last few years, as has the use of exchange-traded funds (ETFs). Combine the two and you get the UBS IQ MSCI Australia Ethical ETF (ASX: UBA).
What Are ASX ETFs?
Exchange-traded funds, or ASX ETFs, are investment funds that are listed on a stock exchange and provide exposure to a range of shares or assets with a single purchase.
Is UBA The Best Ethical ETF?
The UBS Australia Ethical ETF started in February 2015, making it one of the more established ethical ETFs. It holds shares in around 70 companies at any given point and aims to track the performance of the MSCI Australia ex Tobacco ex Controversial Weapons Index.
The UBA ETF has a market cap of just over $185 million. While this pales in comparison to the size of competitors such as the BetaShares Australian Sustainability Leaders ETF (ASX: FAIR), it offers lower management fees and much higher dividends.
The UBA ETF uses a negative screening approach to avoid companies involved in the tobacco or weapons industries, but apart from that, it invests in some of the largest companies on the ASX. This article explains negative screening in more detail.
The UBA ETF is most heavily weighted towards financials (37.8%), followed by materials (16.4%) and health care (10.2%).
Over the last three years, the UBA ETF has returned an average of 11.83% per year, although much of this performance comes from dividends rather than capital growth. Since inception, capital growth has been around just 11% while semi-annual dividends have made up the rest of the return. The current trailing dividend yield is 5.44%, 66.45% franked.
Fees And Risks
UBA’s fees are lower than most other ethical ETFs with an annual management fee of only 0.17%.
Capital growth has not been a strength of this ETF and it might be best considered as a dividend ETF. Another point is that some investors may not consider this a true ethical ETF.
Depending on your approach, you may be looking for an ETF that actively seeks out ethical companies that are operating in areas such as renewable energy. While this may not be considered a risk, it’s important to note that the UBA ETF doesn’t take a noticeably proactive approach to ethical investing.
My Take On UBA
The UBA ETF is one of the more appealing ethical ETFs in terms of dividend yield and management fees, but it lacks capital growth. Personally, if I was going to invest in an ethical ETF, I would also prefer one that actively seeks ethical companies rather than just excluding companies in a select industry.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclosure: At the time of writing, Max does not have a financial interest in any of the companies mentioned.