This week brought not only some new ETFs but a new family: ESG Shares. The sponsor is Pax World, one of the originators of the “socially responsible investing” niche and manager of several mutual funds. “ESG” stands for Environmental, Social and Governance – three of the key factors the firm looks for in its investments.
According to the ESG Shares web site, the firm will offer three different ETFs.
- North American Sustainability Index ETF (NASI)
- Europe Asia Pacific Sustainability Index ETF (EAPS)
- FTSE Environmental Technologies Index ETF (ETFY)
As of today, only NASI appears to be trading. The other two are due out soon. They will face competition for the dollars of socially responsible investing: ETFs in this space are already offered by iShares, PowerShares, and Market Vectors. Each covers a slightly different niche, however, so ESG may be able to gain a foothold.
NASI will attempt to track the FTSE KLD North American Sustainability Index. The index includes equity issuers organized or operating in North America and is adjusted annually using a proprietary KLD methodology. Environmental, Social and Governance factors are all taken into account. The index is float-adjusted, capitalization-weighted, and sector-neutral. The latter means that sector allocations are adjusted in an attempt to match overall market sector weightings.
Top holdings in the index are all familiar names: Proctor & Gamble (PG), Johnson & Johnson (JNJ), International Business Machines (IBM), Wells Fargo (WFC), and Cisco Systems (CSCO). I was not previously aware that these firms were more socially responsible than any others, but the KLD model obviously thinks they are.
NASI appears to have been seeded with an initial $2.5 million in capital and has an expected expense ratio of 0.50%.