Australian Ethical launches first ETF: Is it worth investing in?

Posted: 1 February 2022 3:10 pm
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Australian Ethical has launched its first ETF. Here's everything you need to know about the product.

Green fund manager Australian Ethical has debuted its first-ever exchange traded fund (ETF) as it looks to cash in on the growing trend.

Australian Ethical has entered the ETF space through a "high conviction fund".

The first ETF for the 35-year-old fund and superannuation manager started trading on Chi-X this morning under the ticker code AEAE.

Any share that the fund owns will meet Australian Ethical's investing criteria.

Australian Ethical's head of domestic equities Mike Murray said that the ETF has been established to help meet rising ethical investing demand, with the need for true-to-label products.

"Our first ETF leverages the combined depth of our ethical research and domestic equities capabilities, and seeks exposure to forward-looking industries such as renewables, healthcare, communications and information technology," he said.

"It targets a highly liquid portfolio of mid- and large-cap securities complemented by select smaller cap exposures that all meet our twin ethical and investment hurdles."

What do investors actually own?

As the label suggests, investors will hold a basket of ethical shares.

It is an actively managed fund with investors owning a small stake in between 20 and 35 shares.

However, it is worth noting that while investors use environmental, social and governance (ESG) as a measure, there's no set definition that funds have to follow.

This means the businesses' definition of ethical investing could differ from yours.

The top 10 holdings are as follows:

HoldingAllocation
Bank of Queensland Limited6.6%
Coles Group Ltd5.9%
Suncorp Group Limited5.9%
Westpac Banking Corporation ORD F/PD Shares5.7%
Telstra Corporation Ltd5.2%
Fletcher Building Limited5.1%
TPG Telecom Ltd TPM-VHA Merged Company Deferred Delivery4.8%
Healius Ltd4.7%
Orora Ltd4.3%
Bendigo and Adelaide Bank Limited4.1%

What are you paying for the ETF?

In its statement, Australian Ethical said investors in this fund will pay 0.80% management fees, as well as a 15% performance fee based on outperformance relative to its benchmark returns.

This will not be the cheapest ethical investment on the market.

Comparison-wise, BetaShares' ethical fund ETHI has a 0.59% management cost.

Although it is worth highlighting BetaShares, it is not actively managed in that the ETF provider does not employ analysts and portfolio managers to outperform a particular benchmark.

This is where the additional costs are going.

Investors with Australian Ethical will have an active management approach.

As such investors will have to decide if they want to take an active or passive approach when investing.

Is now a good time to invest in the ETF?

Despite the market's current volatility, Australian Ethical's ETF is a "high conviction fund" filled with largely established businesses.

In fact, its top 10 holdings are made up of predominately financial, healthcare and consumer staple companies.

As such, it is unlikely to be as impacted to the same extent as an ETF filled with technology-based stocks.

Not only are investing buying established businesses with a proven track record, they are buying into ethically based companies.

As CEO and managing director of Australian Ethical John McMurdo said, this the company is "extremely proud of having some of the highest standards in the market for both ethical portfolio and financial returns".

"Democratising access to ethical investment, through the release of products such as this ETF, is a very important part of our strategy," he concluded.

At the time of writing, Cameron Micallef owns shares in Australian Ethical.

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