The ETHO ETF finished another strong quarter, with the underlying Etho Climate Leadership Index US closing Q2 2019 up 61.69% since inception in Q4 2015, beating than S&P 500 by just over 9% over the same period. For over 3 years, the ETHO ETF’s outperformance of broad market benchmarks has been helped both by Etho Capital’s unique approach to identifying competitive advantages from “climate efficiency” analysis, and by early identification of a wide range of environmental, social, and governance (ESG) risk factors. As recently featured by Bloomberg, Etho Capital’s team successfully avoided PG&E’s wildfire-driven bankruptcy thanks to early warnings on corporate mismanagement, infrastructure neglect, and climate risk issues, and Etho Capital analysts were also early movers avoiding ESG-linked record losses at Facebook and Volkswagen, as well as recent investor movements to divest from the private prison and detention center industry.
Globally, the integrated ESG market continues to grow, with over $86 trillion in AUM now pledged to the UN Principles on Responsible Investment (UN PRI), over $30 trillion in AUM already allocated to sustainable investing strategies, and 82% of US asset managers now believing that strong ESG practices can lead to better financial returns, according to Bloomberg and Morgan Stanley. Climate has continued to lead ESG news, with the UK government developing a Green Finance Strategy and considering mandatory climate reporting for companies, and large pensions continuing to adopt climate risk and opportunity integration mandates. ESG investors have also continued to push for better diversity and inclusion metrics and requirements, empowering funds like ETHO to better avoid bad actors and identify competitive advantages.
The ETHO Climate Leadership U.S. ETF returned 5.50% for the quarter ended June 30, 2019, which was in line with its ESG benchmark and ahead of US broad large-cap and mid-cap equity benchmarks. Looking at sector performance, the most significant positive contributors were ETHO’s holdings in Information Technology (+8.9%), followed by Financials (+7.8%) and Industrials (+5.6%). The one sector that had a negative impact on return was Consumer Discretionary, which was down 27 basis points in Q2.
At the security level, the most significant positive contributors to ETHO’s return in Q2 were led by Sunpower Corp (SPWR, +64.2%), Cypress Semiconductor (CY, +50%), and Tableau Software (DATA, +34.7%). Companies held by ETHO that detracted from performance included retailers Urban Outfitters (URBN, -31.9%), Foot Locker (FL, -31%), and The Gap (GPS, -29.9%).
Looking at fundamental factor performance, factors contributing positively were exposure to the US Market and the style factor Volatility. Exposure to the software industry helped performance as well. Factors contributing negatively were led by the style factors Size, Trade Activity, and the Pharma/Biotech.
Breaking out the Style factor into its subcomponents, we see exposure to Trade Activity as the as the largest positive contributor to ETHO’s Q2 performance,followed by Leverage. The largest detractors from ETHO’s return were an overweight to Trade Activity and an underweight to Size.
Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Fund’s statutory and summary prospectus, which may be obtained by calling 1-844-383-6477, or by visiting www.etfmg.com/ETHO. Read the prospectus carefully before investing.
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Narrowly focused investments typically exhibit higher volatility. The Fund’s return may not match or achieve a high degree of correlation with the return of the Etho Climate Leadership Index — US. To the extent the Fund utilizes a sampling approach, it may experience tracking error to a greater extent than if the Fund had sought to replicate the Index.
ETF Managers Group LLC serves as the investment adviser to the Fund.
The Fund is distributed by ETFMG Financial LLC. Both ETF Managers Group LLC and ETFMG Financial LLC are wholly owned subsidiaries of Exchange Traded Managers Group LLC (collectively, “ETFMG”). ETFMG Financial LLC is not affiliated with Etho Capital.