The first quarter of 2019 was a success for global equity markets, and for ESG investors as well. While the political battle raged on, companies continued with their support for policies that recognize the realities of climate change, good corporate governance and social responsibility. Investors were rewarded accordingly, as ESG is gaining in importance and credibility as a viable investment theme.
In March, the Pentagon sent a letter to Congress containing a list of military bases most at risk from climate change threats within the next 20 years. This study was considered incomplete, as it did not recommend corrective measures, nor did it include overseas bases; it did, however, highlight the increasing threat extreme weather would have on national security.
In its 2019 report “Investing in a Time of Climate Change”, investment consultant Mercer applied statistical modeling to delve into multiple future scenarios and their impact on investment returns. Among other findings, the report concluded that climate change should be incorporated into the investment process to maximize an investor’s risk/return profile. This quote appeared in the executive summary:
“The recommended Investor Actions from the 2015 Report remain valid — to incorporate climate change considerations as part of good governance and investment decision-making… we continue to recommend an integrated approach when setting investment beliefs, policies and processes.”
Mercer, “Investing in a Time of Climate Change — The Sequel” (2019)
The Etho Climate Leadership U.S. ETF (ETHO) returned 16.17% for the quarter ended March 31, 2019, which was in line with its ESG benchmark and generally ahead of US large- and mid-cap equity benchmarks. Looking at GICS sector performance the most significant positive contributors were ETHO’s holdings in Information Technology (+21.5 %), followed by Industrials (+17.3%) and Consumer Discretionary (+18.3%).
At the security level, the most significant positive contributors to ETHO’s return in Q1 were led by Advanced Micro Devices (AMD, +38.2%), Ionis Pharmaceuticals (IONS, +50.2%) and Xilinx Inc (XLNX, +49.4%). Companies held by ETHO that detracted from performance included Tesla (TSLA, -15.9%), Cigna (CI, -15.3%) and AMN Healthcare (AMN, -16.9%).
Looking at fundamental factor performance, factors contributing positively were exposure to global markets, the US market and the style factor Trade Activity. Exposure to the software industry helped performance as well. Factors contributing negatively were led by the style factors Size, Volatility and the banking industry.
Breaking out the Style factor into its subcomponents, we see Trade Activity as the largest positive contributor to ETHO’s Q1 performance, followed by Growth and (to a lesser extent) Leverage. The largest detractor from ETHO’s return was Size, followed by Momentum.
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.ethoetf.com. 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.