There is already an exchange-traded fund that offers S&P 500 exposure without energy equities, but a new pair of ETFs from State Street Global Advisors (SSgA) broadens the horizons of investors looking to exclude fossil fuels from their portfolios.
2 New Ex-Energy ETFs
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On Tuesday, SSgA, the third-largest U.S. ETF issuer, launched the SPDR MSCI EAFE Fossil Fuel Reserves Free ETF (NYSE: EFAX) and the SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (NYSE: EEMX). Those new ETFs are the latest additions to SsgA's ESG lineup of ETFs, a group that includes the SPDR S&P 500 Fossil Fuel Reserves Free ETF (NYSE:SPYX).
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Various iterations of ESG investing have proven successful among ETFs, while other ideas have scuffled. However, there is some merit to the notion that some investors are looking to avoid exposure to traditional energy producers. Just look at SPYX. In quiet fashion, the ETF has amassed $103 million in assets under management in just 11 months on the market.
Digging Deeper Into EFAX And EEMX
EFAX seeks to track the MSCI EAFE ex Fossil Fuels Index. The Index is designed to measure the performance of companies in the MSCI EAFE Index that do not own fossil fuel reserves. Fossil fuel reserves are defined as economically and technically recoverable sources of crude oil, natural gas and thermal coal but do not include metallurgical or coking coal, which are used in connection with steel production, according to a statement from SSgA.
The traditional MSCI EAFE Index allocates about 12.5 percent of its weight to energy and materials stocks. Those sectors combine for just 7.2 percent of EFAX's weight.
The SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX) seeks to track the MSCI Emerging Markets ex Fossil Fuels Index. The Index is designed to measure the performance of companies in the MSCI Emerging Markets Index that do not own fossil fuel reserves, as defined above. The MSCI Emerging Markets Index captures large and mid-capitalization representation across 23 emerging market countries, added SSgA.
The emerging markets ETF excluding fossil fuels stocks could provide an interesting spin on investing in developing economies because the energy and materials sectors often see significant weights in standard emerging markets benchmarks, due in part to the fact that those industries are dominated by state-owned enterprises in the developing world.
Energy and materials names combine for 14.2 percent of the MSCI Emerging Markets Index, but EEMX devotes just 3.4 percent to those groups.
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