Hartford Funds today debuted an exchange-traded fund that checks off the boxes pertaining to certain recent ETF trends: active management, factor-based investing and a focus on environmental, social and governance criteria.
The Hartford Schroders ESG US Equity ETF (HEET) aims to provide a better ESG profile than its bogey, the Russell 1000 Index. It also assesses eligible holdings based on factor characteristics, or specific drivers of return including value, profitability, momentum and low volatility.
Schroder Investment Management North America is the fund’s sub-advisor, and the portfolio manager is Ashley Lester, head of systematic investments at Schroders.
The fund will employ internally developed quantitative ESG scores—coupled with qualitative analysis—to address risks centered on issues such as climate change, environmental performance, labor standards and corporate governance. This process seeks to identify companies that Lester believes have sound or improving ESG practices.
The portfolio selection process incorporates revenue thresholds to gauge whether companies are “significantly” involved with the tobacco, weapons, tar sands, thermal coal and gambling sectors. Other sectors, such as controversial weapons, are totally excluded from the fund.
The fund’s objective is to create a portfolio with an overall carbon intensity that’s at least half that of the fund’s benchmark, according to the prospectus. The portfolio’s top five holdings contain some of the largest U.S.-listed companies, including Apple Inc., Microsoft Corp., Alphabet Inc.’s Class A shares, Amazon.com and Johnson & Johnson. Surprisingly, the ninth-largest holding is ExxonMobil, a company not normally found in ESG-focused funds.
As described in the prospectus, the sub-advisor’s ESG scoring methodology is designed to identify companies that demonstrate solid ESG practices or are showing improvement on that front. Perhaps the fund manager feels that ExxonMobil is taking steps to improve its ESG credentials.
Regarding factor-based analysis, Lester will look for companies he believes are cheap based on selected fundamental measures, and which are financially healthy and produce strong earnings. He also seeks companies with favorable recent share price performance versus their peers, and those with lower-than-average idiosyncratic volatility.
The Hartford Schroders ESG US Equity ETF’s expense ratio is 0.39%. This is the 12th ETF from Hartford Funds, a provider of mutual funds, ETFs and 529 college savings plans. The company’s investment advisory business had roughly $145.2 billion in discretionary and non-discretionary assets under management as of this year’s first quarter. That includes $4.3 billion in ETF assets, according to ETF.com.