We take a look at some of the more unique and innovative ETFs to launch this year.
This year has been a big one for exchange-traded fund (ETF) launches. While many of these launches have been tracking conventional indices, there has been a growth of more niche and alternative ETFs. For instance, there are now more than 70 thematic ETFs in Europe. According to Global X, thematic ETFs now have over $40 billion (£30 billion) in Europe alone.
Below, we take a look at some of the more interesting and unique ETFs to launch in 2021.
Clean energy explodes
The most popular thematic ETF in the world is probably the iShares Global Clean Energy ETF USD Dist GBP (LSE:INRG). The popularity of the ETF (and its US counterpart) resulted in the ETF’s index provider (S&P) expanding the number of constituents from 30 to around 90, owing to liquidity concerns. Unsurprisingly, then, other ETF providers have had a crack at offering their own clean energy ETFs.
In November this year, we saw the launch of the Global X CleanTech ETF USD Acc (LSE:CTEK). This ETF tracks the Indxx Global CleanTech Index. This index is made up of 40 stocks that should “benefit from the increased adoption of technologies that inhibit or reduce negative environmental impacts”. Alongside renewable energy production and energy storage, this includes companies involved in increasing energy efficiency.
Preceding this launch was the HANetf S&P Glb Cln Engy Slct HANzero ETF (LSE:ZERO), which listed in June. The ETF tracks the original S&P Global Clean Energy Index, so therefore tracks 30 constituents. One selling point of this ETF, according to HANetf, is that the original index is more of a “pure play” of the theme.
The ETF also aims to offset the carbon produced by companies in its portfolio. The ETF will use data from S&P Dow Jones Indices (SPDJI) to work out the CO2 emissions produced by the firms in the portfolio. It will then use a percentage of the ongoing charge fees to fund environmental projects to offset these emissions. So far these include a forest conservation project in Papua New Guinea and the creation of a river hydro plant in Indonesia.
Earlier in the year, the Invesco Global Clean Energy ETF Acc (LSE:GCLE) was also listed. This ETF is a copy of Invesco’s US listed clean energy ETF, which initially launched in 2007. The ETF tracks the WilderHill New Energy Global Innovation index.
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This year has also seen ETFs providing exposure to specific types of clean or alternative energy. Two ETFs have launched offering exposure to hydrogen: the VanEck Vectors Hydrogen Ecoy ETF A USD (LSE:HDRO) and the L&G Hydrogen Economy ETF USD Acc (LSE:HTWO).
These ETFs provide exposure to companies that are enabling the production and use of hydrogen, as well as those that are expected to play an integral role in the broader hydrogen economy. Hydrogen energy is a so-called clean fuel. Unlike oil and coal, when consumed it does not emit CO2. As a result, it is a seen as an environmentally friendly fuel source.
We’ve also seen the launch of the Solar Energy ETF (LSE:TANN). This ETF tracks the EQM Global Solar Energy Index, composed of companies that derive significant revenue from solar energy-related business operations.
More than energy
The environmental, social and governance (ESG) theme, however, extends beyond companies involved in alternative, clean forms of energy – and this is reflected in ETF launches.
In July, we saw the launch of the Rize Environmental Impact 100 ETF GBP (LSE:LVNG). This ETF tracks the Foxberry SMS Environmental Impact 100 USD Net Total Return Index. Companies in the index are supposed to align with the one of the European Union’s six Taxonomy for Sustainable Activities.
These are: climate-change mitigation, climate-change adaptation, water and marine use sustainability, the transition to a circular economy, pollution prevention and control, and biodiversity and ecosystem protection and restoration.
Another launch has been the Cleaner Living ESG-S ETF (LSE:DTOX). According to the ETF’s literature: “Cleaner Living seeks to eliminate, wherever possible, artificial chemicals, additives and ingredients that are deemed to have potentially harmful effects, as well as avoid the materials or technologies that can damage the planet through pollution or depletion of natural resources.”
The ETF tracks the Tematica Bita Cleaner Living Sustainability Screened Index. This index aims to capture the market performance of companies that derive more than 80% of their revenue or earnings from selling goods or services in least one of the following five segments: cleaner building & infrastructure, cleaner energy, cleaner food & dining, cleaner health & beauty, and cleaner transportation.
We also saw investors regain the ability to invest in EU carbon credits. These carbon credits are issued each year, with industrial firms required to hold enough to cover the emissions they produce. While the amount of credits issued each year is capped, firms with higher emissions are able to purchase credits on the market. This means that pollution has a “price” that firms must factor into their decision-making, creating an incentive to cut emissions.
However, the EU also reduces the number of new credits issued each year. As a result, credits become scarcer and therefore increase in price. The hope is that this will incentivise firms to reduce their emissions as the “price” of pollution increases.
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In August, WisdomTree re-introduced Europe’s first carbon exchange-traded ETF, the WisdomTree Carbon ETC GBP (LSE:CARP), tracking the Solactive Carbon Emission Allowances Rolling Futures Index. This index allows investors to gain ICE Carbon Emission Allowances (EUA) futures contract. It had previously closed due to counterparty issues.
In addition, in November, the SparkChange Physical Carbon EUA ETC (LSE:CO2) launched. Unlike the WisdomTree product, this ETC physically holds carbon credits rather than using futures.
One of the big stories of the year has been bitcoin and other cryptocurrencies. As a result, there have been several cryptocurrency-related ETFs launch, including ones that provide exposure to the wider cryptocurrency theme.
Earlier in the year, the VanEck Vectors™ Digital Ast Eq ETF A USD (LSE:DAPP) launched. The ETF tracks the MVIS Global Digital Assets Equity Index, composed of 25 shares.
The index provider defines the inclusion requirement as such: “Its unique pure-play approach requires that companies have to generate at least 50% of their revenues from digital asset exchanges, payment gateways, mining operations, software services, equipment and technology or services to the digital assets industry, digital asset infrastructure businesses, or companies facilitating commerce with the use of digital assets.”
In November, a rival ETF launched, the ETC Grp Dgtl Assts & Blckchn Eq ETF $Acc (LSE:KOIN). This ETF pitches itself as a purer approach than the other existing ETFs, with the ETF’s index methodology limiting “non-pure play” companies to a maximum weight of 4%. It says it has a correlation of 0.7 with bitcoin.
These ETFs allow investors to gain exposure to the rise of cryptocurrencies and bitcoin with potentially less volatility. They can be seen as offering a sort of “picks and shovels” approach. While the price of bitcoin and other currencies may be unpredictable, the popularity of such coins seems here to stay, making investment in companies that profit from the wider cryptocurrency economy potentially attractive.
No state-owned enterprise, space exploration and ESG gold
Another unique ETF to launch this year was the WisdomTree EM ex-St-OwndEntrprESGScrnETF GBP (LSE:XSOP). The ETF tracks WisdomTree’s only internal emerging market index, excluding state-owned companies. The consensus view is that such companies are often less efficient and less profitable. WisdomTree defines state-owned enterprises as having government ownership of more than 20% of outstanding shares.
Another interesting launch was the Procure Space ETF USD (LSE:YODA. The ETF listed in early June, making it Europe’s first space thematic ETF.
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At least 80% of the ETF’s portfolio is allocated to companies earning most of their revenues from space-related business. The index splits these into two main groupings: satellite operators and hardware. Satellite operators are companies that either own or manage satellites or subsystems aboard satellites. Hardware refers to companies involved in the sale of equipment used by manufacturers in the creation of satellites and launch vehicles, as well as spacecraft components and supporting ground equipment.
We’ve also seen the launch of the AuAg ESG Gold Mining ETF (LSE:ESGO). This ETF tracks the Solactive AuAg Gold Mining Index, providing exposure to the 25 gold-mining companies with the best ESG performance, according to Sustainalytics.
Tracking the Solactive AuAg Gold Mining Index, this ETF offers exposure to the 25 gold-mining companies that perform best on ESG screening metrics provided by Sustainalytics. These stocks are then weighted equally.
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