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This year. We're going Beyond.

2 reasons I like the BetaShares ETHI ETF – and 1 reason I don’t

The Betashares Global Sustainability Leaders ETF (ASX: ETHI) launched in January 2017 and has become one of the fastest-growing ASX ETFs since.

Here are two reasons I like the ETHI ETF – and one reason I don’t.

A quick overview

ETHI is one of Betashares’ four “ethical” ETFs, investing in a portfolio of companies identified as “climate leaders” that have also passed screens to exclude companies with significant exposure to fossil fuels and other “unethical” industries.

ETHI takes an annual management fee of 0.59% per year, pays semi-annual dividends, and has returned 21.57% per year since inception in January 2017.

Source: Best ETFs ETHI share price chart since inception

Global exposure

The first appealing feature of this ETF to me is global exposure. ETHI’s global focus allows it to invest in some of the global giants like Apple Inc (NASDAQ: AAPL), Tesla Inc (NASDAQ: TSLA) and Netflix Inc (NASDAQ: NFLX), which have all been big contributors to the growth of the fund.

While a large portion of the ETF’s assets is US-based (around 70%), ETHI also provides exposure to companies based in Japan, Switzerland, the Netherlands, Hong Kong, France and others.

Typically when I’m looking at ETFs to invest in, I favour global exposure as it broadens the scope of possible investments and moves away from the largest ASX-listed companies which are heavily skewed towards mining and financials.

Global exposure allows an ETF to achieve better diversification and opens up the possibility of investing in the best companies in the world, rather than the best companies in your domestic market.

Global investing does however come with some increased risk, introducing factors such as exchange rate risk and exposure to global political and economic risk. Global exposure is also generally associated with higher management costs.

Sustainable focus

The second reason I like the ETHI ETF is of course the sustainable focus. When selecting investments, BetaShares starts by picking companies from developed markets which meet its usual market cap and liquidity requirements.

From there, the ethical screening tests start. Companies in the ETHI portfolio must be in the top one-third of performers in their industry in terms of carbon efficiency. There are no fossil fuel producers, no companies with significant involvement in gambling, alcohol, junk food, or armaments, and there are no companies lacking gender diversity at the board level or with known human rights or supply chain issues.

This approach of using some positive screening and some negative screening goes a long way to ensuring that the companies ETHI invests in could be broadly categorised as “ethical” and has clearly not harmed performance over the last three years.

But what does “ethical” really mean?

You may have noticed that throughout this piece I’ve used the terms “ethical” and “unethical” in quotation marks, which leads me to the reason I don’t love ethical ETFs. Ethics are inherently subjective; no two people will always agree on what is ethical and what isn’t.

This is not necessarily a criticism of ETHI or BetaShares, but more of the idea of an ethical ETF in the first place. I’m pleased to see what ETHI is trying to achieve and it seems like their screening criteria does a good job of excluding the most controversial companies, but I think it’s difficult to create an ETF that uses a few screening criteria to find a portfolio that everyone can agree is ethical.

As a broad solution for ethical investing these ETFs certainly have merit, but personally, if I’m looking to invest ethically I’m searching for individual companies that do good for the world, rather than not doing bad for the world. It’s a subtle but important difference that I’m not convinced has been captured by this or other ethical ASX ETFs.

To read more about the BetaShares Global Sustainability Leaders ETF, check out our free ETHI report.

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Is BNPL the opportunity of a lifetime or is the sector a ticking time bomb?

Rask's analyst has just finished a 7,500-word report, The Ultimate BNPL Sector Report, taking a deep dive into this booming ASX sector. It shines a spotlight on each of the major players. You can get the full analyst report for FREE by CLICKING HERE NOW.

Note: the report is 100% free.

Disclosure: At the time of publishing, Max does not have a financial or commercial interest in any of the companies mentioned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

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