For most investors — from newcomer retail traders to the most experienced stock market veterans — trading on the share market is all about trying to build your wealth. There are myriad reasons why you might decide to buy a certain stock, but you do not need to throw your values out the window to still invest wisely. In fact, there is a growing market for ethical investing, including a focus on the environmental, social and corporate governance (ESG) policies of listed companies.

The good news is that exchange-traded funds (ETFs) have made it very easy for you to invest in companies that align with your ethical values. There are ETFs dedicated to renewable energy, anti-weapons investing, greater diversity of boards of directors, electric vehicles, fighting environmental degradation — the list is near-endless. The only challenge is picking which ETFs match your own views and then deciding whether you believe they will continue to grow over time. To help get you started, we explore below how to choose an ETF and some interesting ESG ETFs to watch for Q2 2022.

How to find the best ESG ETFs

Sustainable ETFs are no longer “afterthought” funds that fail to garner any real interest from investors. On the contrary, many ethical ETFs are a force to be reckoned with.

Generally, investing in ETFs is different from investing in certain stocks because they are more of a long-term decision. While — like all investments — there is the risk of their share price becoming volatile, ETFs are generally more steady than small- to mid-cap stocks, and investors choose them for their durability, diversity and growth potential over the long term, rather than as short-term trading picks.

So how exactly do you find the right ETF for you? And how can you ensure the companies within that ETF have the environmental, social or corporate governance values that align with your own views? It takes research and due diligence, but we can help you get started on your ESG ETF journey right now. Here are five ethical ETFs that we think are worth monitoring in Q2 2022.

5 ESG ETFs to consider now

In this guide, we will highlight five interesting ESG ETFs to watch in Q2 2022. The ETFs are:

iShares PHLX Semiconductor ETF (SOXX)

  • iShares PHLX Semiconductor ETF tracks a modified market cap-weighted index of 30 different US-listed semiconductor companies, including those involved in the design, manufacture and distribution procedures of semiconductors.
  • To be eligible for this fund, companies must meet strict requirements surrounding liquidity and investment quality, including a minimum market cap of $100 million.
  • The ETF uses market cap-weighting with a capping technology. That means the top five securities are capped at 8%, with the remainder capped at 4%.
  • The sampling strategy used to track the PHLX Semiconductor Sector Index is reconstituted every year and rebalanced quarterly.
  • Offering exposure to 30 firms in the semiconductor space, the fund has amassed $6.52 billion in its asset base and trades, on average, in a quarterly volume of 1.5 million shares.
  • This fund is non-diversified, so make sure you are aware of both the benefits and risks of investing in a non-diversified ETF.
  • As of 25 February 2022, the iShares stock price was well up on its price at the same time last year, valued at $469.24.

BUY NOW WITH 0% COMMISSION

Your capital is at risk. Other fees apply.

VanEck Vectors Semiconductor ETF (SMH)

  • The VanEck Vectors Semiconductor ETF tracks a market cap-weighted index of 25 of the largest semiconductor companies listed in the US.
  • Established in 2011, the fund gives investors exposure to 25 securities via the MVIS US Listed Semiconductor 25 Index.
  • If you are looking for a diversified ETF, this may not be for you. The fund is highly concentrated and invests in common stocks and depositary receipts of semiconductor companies.
  • In order to be eligible for the fund, companies must prove that 50% of their revenue comes primarily from producing semiconductors and semiconductor equipment.
  • Product managed assets within the fund are worth approximately $5.42 billion and it trades a quarterly average volume of 4.6 million shares.
  • VanEck Vectors Semiconductor ETF reached an all-time high of more than $316 at the end of December 2021, but with a steep yet short drop-off in mid-January, new investors may jump at an entry price that is potentially undervalued.

 

BUY NOW WITH 0% COMMISSION

Your capital is at risk. Other fees apply.

Materials Select Sector SPDR ETF (XLB)

  • The Materials Select Sector SPDR ETF tracks the returns of the Materials Select Sector Index, which encompasses all of the S&P 500 component companies that are housed within the “materials” sector.
  • Companies within the fund are active in the discovery, development and processing of raw materials, working across chemical, construction material, containers and packaging, metals and mining, and paper and forest products industries.
  • The fund tracks a market cap-weighted index of US basic materials companies, focusing exclusively on the materials component of the S&P 500.
  • Like other ETFs on this list, the fund is heavily concentrated on large-cap companies from a specific sector, which should be a major consideration before making an investment.
  • One of the “selling points” of this ETF is that it allows investors to take up a more strategic position — and at a targeted level — as compared to traditional investment options.
  • The fund has an MSCI ESG Fund Quality Score ranked in the top 20% against other funds in the same peer group.
  • The ETF has recently hit a new peak above $90 in December 2021, representing a yearly increase in price of 26.7%. The share price as of 25 February was $81.37.

BUY NOW WITH 0% COMMISSION

Your capital is at risk. Other fees apply.

ARK Innovation ETF (ARKK)

  • ARK Innovation ETF (ARKK) is part of CEO Cathie Wood’s suite of innovative, high-flying funds and is arguably its flagship ETF.
  • The fund is made up of various disruptive companies that develop new products or services. These are mainly in the areas of DNA technologies, industrial innovations, fintech innovations and next-generation Internet.
  • In December 2020, ARK Innovation became the largest actively managed ETF.
  • ARKK is focused on accruing long-term capital growth through its domestic and foreign equities securities investments, with major holdings such as Tesla, Intellia Therapeutics, Sea Ltd. and Square.
  • With exposure to a range of sectors, but particularly healthcare and IT assets, it is a popular choice among investors who want to diversify their portfolios.
  • From its low of $14.76 in February 2016, the fund has seen consistent growth, peaking above $156 in February 2021. The share price was $65.62 as of 25 February.
  • Despite dropping 60% of its value since its 2021 peak, its underlying holdings still have a positive outlook over the long term. Bullish investors could get value at the current price, with the ETF still holding strong tech names that will potentially outperform in the near future.

BUY NOW WITH 0% COMMISSION

Your capital is at risk. Other fees apply.

Invesco Solar ETF (TAN)

  • As its name suggests, the Invesco Solar ETF is heavily focused on the solar industry, made up of various companies within the solar energy sector.
  • The exchange-traded fund was established in 2008 and is based on the MAC Global Solar Energy Index (GSEI).
  • The Invesco Solar ETF guarantees at least 90% of its total assets will be invested in MAC GSEI’s securities, American depositary receipts (ADRs) and global depositary receipts (GDRs).
  • The fund is diversified across technologies, geographies and the value chain, with its solar holdings fairly evenly split across North America and Asia, with a not insignificant exposure to Europe as well.
  • Solar appears to have a long runway for future growth in the coming decades, which may interest investors looking for a long-term ETF to hold for several years or decades.
  • After peaking above $120 per share multiple times at the start of 2021, the ETF experienced some pullback throughout the year, providing investors with a more attractive entry point.
  • A challenging January has seen the price turn around, with investors hopeful of a steady rise throughout 2022 to counter the 2021 drop-off. The share price was $64.80 as of 25 February.

BUY NOW WITH 0% COMMISSION

Your capital is at risk. Other fees apply.


Charts sourced from eToro platform 25/02/2022. All trading carries risk. Only risk capital you can afford to lose.

This communication is for information and education purposes only and should not be taken as investment advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without taking into account any particular recipient’s investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.

Zero commission is only available to clients of eToro Europe Ltd. and eToro UK Ltd., and does not apply to short or leveraged stock trades. Zero commission means that no broker fee has been charged when opening or closing the position. Other fees apply. For additional information regarding fees, visit https://www.etoro.com/trading/fees Your capital is at risk.