Why invest in State Street’s new ASX 200 ethical ETF (E200)?
The new SPDR fund is the first ethical ETF to track the ASX 200 index – here's how it compares to the rest.
For the first time, Australian investors will have the option of an "ethical" alternative to the benchmark S&P/ASX 200 index.
The SPDR S&P/ASX 200 ESG Fund (Ticker: E200) from US asset management firm State Street Global Advisors (SSGA) launched on Wednesday on the Australian Securities Exchange (ASX), becoming the first ethical-themed exchange traded fund (ETF) to track the ASX 200.
Meaghan Victor, head of SPDR ETF Asia Pacific, told Finder the fund's ESG (environmental, sustainable and corporate governance) scoring methodology is one of the most comprehensive in the industry.
"The securities are market cap weighted so they represent 75% of the market capitalisation of each industry group in the S&P/ASX 200 Index. This is what will give the fund a similar risk-return profile to the S&P/ASX 200 Index," she said.
“The good thing about E200 is that it is transparent, meaning you can look under the hood to see what is included and whether that aligns with your values.”
What does "ethical" mean here?
E200 aims to mimic the performance of the 200 biggest companies on the ASX but removes any companies involved in tobacco or controversial weapons. It also filters companies in the bottom 25% of each sector in terms of ESG ratings.
The final list to date has around half the number of companies as the ASX 200, with just 102 meeting the fund's ethical criteria.
Notably, Commonwealth Bank (CBA), Goodman Group (GMG), Afterpay (APT) and TPG Telecom (TPG) are all missing from the list of holdings. Meanwhile, all other major Banks and numerous mining and gas companies such as BHP (BHP), Rio Tinto (RIO) and Fortescue Metals Group (FMG) seemed to have made the cut.
Investing in mining companies might seem counterintuitive to an ESG fund, but there are no hard rules around what constitutes "ethical". A company with a poor environmental score may still have a high ESG rating thanks to other factors.
How much exposure a company should be allowed to have to fossil fuels is also up for debate. While some funds allow oil and mining stocks because they maintain high ESG scores, others take a hardline approach and strictly exclude all fossil fuel-related companies.
How does it compare?
There are around 11 ethical funds listed on the ASX, each with different ESG strategies. Around half are Australian equities ETFs and half hold global bonds or equities.
Starting with the good, E200 has the cheapest management fee (MER) of the lot at 0.13% per annum. It also has a unique proposition, being the only ESG ETF to track the ASX 200 index.
On the not so good, its inclusion of fossil fuel and gambling industry companies won't suit everyone. E200 is one of only two ESG funds on the ASX that doesn't strictly exclude the oil and mining sector.