Last month's launch of the Huntington EcoLogical Strategy Shares ETF (HECO) added another player to the small universe of environmentally- and socially-conscious exchange-traded funds.
The HECO fund aims to invest in eco-focused companies that provide products and services that advance green practices and demonstrate sustainability. It's an actively-managed, multi-cap offering comprised mainly of mid- and large-cap companies, although its top holding, natural and organic foods provider Hain Celestial Group, is a small-cap stock. The fund's expense ratio is capped at 0.95%.
The fund was launched by Huntington Asset Advisors Inc., a subsidiary of Columbus, Ohio-based Huntington Bancshares Inc. It's being distributed by SEI Investments Distribution Co.
"We capitalize the 'L' in EcoLogical," says fund manager Brian Salerno. "It's not just schtick because just being green isn't good enough to get into our portfolio. Companies have to be logical investments."
In other words, the fund isn't loaded with solar stocks or other green energy plays that remain beaten down since the market crash four years ago. Salerno says he's a big believer in solar energy, but not in solar as an investment because cutthroat competition has drastically slashed the profits at solar panel makers.
"I think solar will probably grow more rapidly than most energy sources for decades, but because there's little competitive advantage in the industry I think it'll be a case of profitless prosperity."
One way to play solar, he adds, is to look at utilities that invest in solar to take advantage of the low input costs to generate clean energy. One example is NextEra Energy, a top ten fund holding in HECO's portfolio that generates renewable energy from wind and solar projects.
Beyond Hain and NextEra, the rest of the fund's top ten holdings read more like a sampling from the S&P 500 than from a specialty green-oriented index--Whole Foods Market, Ebay, Spectra Energy, Borg-Warner, LKQ (a maker of automobile replacement parts), Starbucks, Johnson & Johnson, and Costco Wholesale.
Salerno joined Huntington in 2005. Prior to the creation of HECO, Salerno ran the fund's portfolio as a seperately-managed account for 13 clients totaling $8 million in assets. He said the portfolio has had positive returns from 2009 through the present.
Before joining Huntington, Salerno says he was an investment manager at two technology mutual funds at Munder Funds.
The HECO fund officially launched about a month after the debut of the AdvisorShares Global Echo ETF (GIVE), an actively-managed fund that bills itself as the first multi-manager ETF with an absolute return and sustainable investment mandate. The fund's four portfolio managers allocate to different investment strategies and asset classes, with the overarching goal to create a core allocation of investments that might socially and environmentally benefit the planet in areas such as water, clean energy, community development, innovation and other sustainable themes.
Of the fund's total management fee of 1.10%, 40 basis points helps finance the Global Echo Foundation, a 501(c)(3) charitable foundation co-founded by Philippe Cousteau Jr., grandson of famed the famed French oceanographer Jacques Cousteau.
Thus far, the fund has attracted $5 million in assets.
The two largest ETFs with a green and/or socially responsible investing bent are the iShares MSCI USA ESG Select Social Index Fund (KLD) and the iShares MSCI KLD 400 Social Index Fund (DSI). Both funds follow indexes that track the performance of companies that have positive environmental, social, and governance (ESG) characteristics. And both also have modest expense ratios of 0.50%.
KLD began trading in January 2005 and has accumulated $178 million in assets. DSI, which has traded since November 2006, has $163 million in assets. Both have generally underperformed the S&P 500 index since their inceptions, according to Morningstar.
Joining them in the ESG space are two newer funds with limited track records--the Pax MSCI EAFE ESG Index ETF (EAPS) and the Pax MSCI North American ESG Index ETF (NASI). NASI launched in May 2010 and recently had assets of slightly more than $10 million. EAPS, which started trading in January 2011, has attracted just $2 million in assets. Both have reasonable expense ratios of 0.50%.