ICAN: Social Responsibility and Return in a Single ETF

Environmental concerns have historically been the domain of politics. But as time goes on, and with publicly traded companies facing increasing regulation, more companies appear to be considering environmental, social, and governance (“ESG”) factors in their own operations. The reason for this is fairly simple: the more we know about ESG risks, the more it becomes evident that taking them into account produces higher returns and lower risks for companies. In fact, hundreds of business leaders have pledged this month to voluntarily adhere to the Paris climate agreement. Why would they do this? Many studies, including one published by the Harvard Business Review, shows that socially responsible companies show higher profitability and stock performance than their counterparts.Serenity Shares Trademark

Additionally, ESG investing provides a long-term view of profitability. If a company’s resources are finite, then eventually the business model must change to accommodate for the loss of resources. However, taking a long-term, sustainable view ensures that a company can operate in perpetuity. Going beyond this, however, companies can provide products that provide solutions to ESG challenges. One example is Tesla, which offers electric vehicles. This is more direct than simply improving operational efficiency. Going forward, it would appear that the appetite for these types of products will only increase. The SerenityShares Impact ETF, launched April 13, 2007, focuses its investments on these products, providing access to companies that are actively making improvements to the environment and society while outperforming the market.

The rise of ESG investing

As the world becomes more connected, society has become more aware of the ways in which people and companies are detrimentally affecting the environment. Additionally, we’ve become more aware of human-rights issues, identifying with others and demanding equal treatment for all. This is most obvious when looking at the millennial generation. While ESG investing has become more popular over the last 20 years, in the millennial generation, it’s almost a requirement. According to Bloomberg, about 84% of millennials are interested in socially responsible investing, and that figure is not expected to change as the generation ages, suggesting that demand for sustainable products will only increase.

In more traditional finance, Deutsche-Bank performed an analysis of more than 2,000 empirical studies dating back to the 1970s and found that about 90% of the studies suggested that ESG investing provides superior returns to passive investing. This suggests that not only is ESG going to be more in-vogue in the future, but, over the long term, it should provide returns greater than funds that are not focused on ESG investing. For this reason, current investors and the largest financial advisors are also moving in this direction, creating another tailwind for ESG companies and investments.

Index process

Unlike many other ESG indexes, which are subjective in nature and require a great deal of analysis to quantify ESG data, the SSI Impact Index is passive in nature. First, the index uses six pillars (for example, resource scarcity, societal, environmental, healthy living) and 20 subthemes (for example, energy efficiency, forestry, and green transportation) to select companies. The index begins with all funds listed on the New York and NASDAQ stock exchanges. It then performs a screening process to determine if the considered companies produce a product that solves or provides improvement to one of the identified challenges. Companies must be relevant to the considered challenges and also provide benefits or solutions to those challenges. This is a far more direct approach than many other ESG indexes and funds take. Not only does the company have to be improving its operations with regard to ESG areas, but it also must be providing a product that is beneficial.

The index itself is reviewed annually and is rebalanced quarterly. Positions are weighted to allow a maximum position of 3.5% and a minimum of 0.5%. Due to the nature of the index, it is underweight in the Energy sector, as many renewable companies are classified as utilities. Additional information is located in the SSI Index methodology paper.

ETF facts

The top 10 holdings of ICAN include a large number of tech firms, such as Google (the largest holding at 4.01%), Apple, and Netflix. However, other types of companies are also present, such as Honeywell, CVS Health Corp, and Disney, which are leaders in their respective sectors. The reasons these companies, and certain sectors, are included are varied (for example, Disney is included for its promotion of cultural diversity). Constituents and their reasons for inclusion can be found here.

Sector exposures are heaviest in Industrials, Technology, and Health Care, while Energy is somewhat underweight versus its market-capitalization weight. Additionally, the report notes that mid-caps are also underrepresented, as companies within that range were less likely to meet the index criteria.

ICAN has an expense ratio of 0.50%, and dividends will be paid annually. The fund’s investment advisor is SerenityShares.

Additional information is located in the fact sheet, the ICAN prospectus, and the SerenityShares website.

Disclosure: No communication by Dynamic Performance Publishing or our employees to you should be deemed as personalized investment advice.  Any investment recommended in this newsletter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.  Dynamic Performance Publishing, its affiliates, and clients may hold positions in the recommended securities.  Results are not indicative of holdings for clients of Flexible Plan Investments.  Forwarding, copying, or otherwise duplicating this information for the use by anyone other than the intended recipient is expressly forbidden.  These results are not representative of those achieved by clients of Flexible Plan Investments, Ltd. (FPI) due to differences in security selection, timing of trades, transaction fees, and FPI’s management fees.

Weekly Edge: ETF Relative Strength Indicates Bulls Still in Charge

Leadership among ETF sectors continues to suggest that market leadership is driven by a mix of influences. All of our benchmark ETFs indicate less bullishness, based on an overall decrease in momentum scores. Health Care is the highest-ranked sector that had an increase in momentum score over the past week, from 28 to 35. Bearish and lagging sectors are at the bottom of the momentum ranking because investors appear to be less bullish on them—not necessarily more bearish. With the exception of Health Care, investors appear modestly less enthusiastic about the leaders than the previous week.

Sectors: The leading Sector Benchmark ETFs exhibited shifts over the past week, but as mentioned, Health Care continued to lead. This past week there was an increase in Health Care’s positive momentum and an increase in Energy’s negative momentum. The spread between the two increased from 52 momentum points the previous week to 65 this past week. Technology advanced in ranking from the middle of the Sector Edge list to right below Health Care this past week. Energy and Telecom continue to exhibit negative momentum at an increasing rate from the prior week. Telecom increased its negative momentum by 9, from -4 to -13. Energy increased momentum to the negative side by 6, going from -24 to -30.

As mentioned in a previous post, the Sector Benchmark ETF leaderboard is not highly “organized.” This means that among the leading sectors there is a mix of bullish economically sensitive sectors such as Technology, Materials, and Industrials. However, also near the top of the list are generally defensive sectors such as Utilities and Health Care. On the other hand, Energy, an economically sensitive sector, is at the bottom of the list with Consumer Discretionary, an offensive sector.

This order of sector relative strength may be explained more by special situations than by economic or market expectations. Continued fear of rising interest rates may be highlighting the yield of Utility stocks while taking the glow off Real Estate. Health Care may be benefiting from investor sentiment about pending health-care legislation, we know price wars are affecting telecom earnings, and an oil glut is holding down energy prices. That the leaders and laggards can be explained by reasons other than market or economic themes is a sign that investors have had little incentive to change their long-term expectations.

Factors: Momentum, Growth, and Low Volatility are the top factors among our Factor Benchmark ETFs this week. The advancement of Low Volatility might suggest minor concerns from investors. However, Momentum and Growth topping the Factor list suggests investor bullishness. This alignment of rank at the top of the list is reinforced by the factors at the bottom of the list, which are all classic defensive safe havens—Value, Fundamental, Yield, and High Beta. While the factor rankings resemble bullishness, primarily due to the advancement of Small-Cap, the decrease in momentum scores for all Factors does signal slightly less bullishness than the previous week. This week, there is only one factor with a momentum score greater than 20 (compared to two the previous week), and the sum of the top three ranking scores is 53 (compared to 72 the previous week). Also adding to the decrease in bullish sentiment is the decline in the sum of the bottom three momentum scores, from 24 to 7.

Global: There were slight changes in rank and overall momentum levels among the Global Benchmark ETFs. The top-ranked regions now include China, Eurozone, and Emerging Markets. This ranking continues to suggest that investors who long underweighted those regions are now directing new capital overseas to regions now believed to be economically and politically stable and growing. On the other hand, global regions such as Latin America and UK are lagging, possibly because of investor uncertainty about their political futures. Due to the increase in momentum levels for Latin America, the uncertainty may have declined in that region. This ranking may not indicate a belief that the leading regions will have the best economies going forward, but that those economies are not now in danger. Emerging Markets advanced to the third spot this past week. The increase in ranking and momentum score could suggest that uncertainty has declined over the past week in emerging-market regions.

2 Week Edge Chart 06/28/17

Disclosure: No communication by Dynamic Performance Publishing or our employees to you should be deemed as personalized investment advice.  Any investment recommended in this newsletter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.  Dynamic Performance Publishing, its affiliates, and clients may hold positions in the recommended securities.  Results are not indicative of holdings for clients of Flexible Plan Investments.  Forwarding, copying, or otherwise duplicating this information for the use by anyone other than the intended recipient is expressly forbidden.  These results are not representative of those achieved by clients of Flexible Plan Investments, Ltd. (FPI) due to differences in security selection, timing of trades, transaction fees, and FPI’s management fees.


“It takes 20 years to build a reputation and five minutes to ruin it.”

—Warren Buffett

DISCLOSURE © 2017 Dynamic Performance Publishing, Inc. – All Rights Reserved. This material is protected under U.S. copyright law and is provided for the exclusive use of our members for personal purposes. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by Dynamic Performance Publishing or our employees to you should be deemed as personalized investment advice. Any investment recommended in this email should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Dynamic Performance Publishing, its affiliates, and clients may hold positions in the recommended securities. Results are not indicative of holdings for clients of Flexible Plan Investments. Forwarding, copying, or otherwise duplicating this information for the use by anyone other than the intended recipient is expressly forbidden. Any retransmission of this material by you is your authorization to us to debit your credit card, or otherwise bill you, for a full price one-year membership for each violation. It may also cause your membership to be revoked without a refund. Any such action on our part does not prevent us from seeking additional legal remedies.

Subscribe to the Invest With An Edge weekly newsletter

And receive our special retirement report, Living on a Million-Dollar Portfolio

Subscribe to receive the Invest With An Edge weekly newsletter and receive our special retirement report, Living on a Million-Dollar Portfolio

Please provide your information below:

* indicates required
Please add info@allstarinvestor.com to your Address Book or Contacts to ensure you are receiving your newsletter to your inbox.

Sign up for our investment advisory service, All Star Investor:

Explore AllStarInvestor.com and improve your ETF game

Check us out on twitter:

Follow us on twitter

  • Categories

  • Tags