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May 9, 2019

On April 30, 2019, Horizons ETFs completed the rebalance of the portfolio of the Horizons Global Sustainability Leaders Index ETF (“ETHI”). ETHI’s rebalance occurred in conjunction with the rebalance of its underlying index, the Nasdaq Future Global Sustainability Leaders Index (the “Index”), which holds 100 large-cap equity securities of companies that are global climate sustainability leaders (as measured by their relative carbon efficiency1), and are not materially engaged in activities deemed inconsistent with responsible investment considerations.

Unlike other index strategies where there is a set methodology that (to some extent) automates the index selection process, every stock in the Index’s portfolio is reviewed by the Responsible Investment Committee (the “Committee” – see details below). The Committee ensures that the companies within the Index comply with the key selection requirements, so that the portfolio comprises their view of the world’s most socially responsible, large-cap companies listed in developed markets.

The key selection criteria include the following:

• Each company must either have a direct carbon impact at 60% below their industry’s average, or otherwise be engaged in activities that significantly helps avoid carbon use by other industries
• No fossil fuel producers
• No companies significantly engaged in gambling, alcohol, junk food, uranium and nuclear energy, armaments and militarism, destruction of valuable environments, animal cruelty, chemicals of concern, mandatory detention of asylum seekers, pornography and/or human rights violations

New Gender Diversity Screen

On this particular rebalance, a crucial new screen was added to the methodology to include increased scrutiny on gender diversity.

The Committee has incorporated a gender diversity screen into the inclusion policy, requiring constituents to have at least one female on their board to be eligible for inclusion in the Index. This new screen resulted in some stocks being removed from the Index despite previously qualifying.

Constituents/Weights

Nasdaq Future Global Sustainability Leaders Index
As at May 1, 2019

STOCK NAME STOCK TICKER NEW WEIGHT (%)
APPLE INC. AAPL US 4.19
HOME DEPOT INC. HD US 4.10
VISA INC. V US 4.09
MASTERCARD INC. MA US 4.09
UNITEDHEALTH GROUP UNH US 3.74
ROCHE HOLDINGS ROG SW 3.69
NETFLIX, INC. NFLX US 2.62
ADOBE INC. ADBE US 2.46
PAYPAL HOLDINGS PYPL US 2.35
AIA GROUP  1299 HK 2.18
NIKE INC CL B NKE US 1.98
NVIDIA CORP. NVDA US 1.90
SALESFORCE.COM INC. CRM US 1.81
STARBUCKS CORP. SBUX US 1.69
NOVO NORDISK -B- NOVOB DC 1.66
ASML HLDG RG ASML NA 1.54
BOOKING HOLDINGS INC. BKNG US 1.41
BRISTOL-MYERS SQUIBB BMY US 1.32
CVS HEALTH CVS US 1.22
ANTHEM, INC. ANTM US 1.19
T J X COS INC. TJX US 1.18
CHUBB LTD. CB US 1.15
STRYKER CP SYK US 1.14
BLACKROCK INC. BLK US 1.08
CME GROUP INC. CME US 1.04
INTUIT INC. INTU US 1.04
CHARLES SCHWAB INC. SCHW US 1.03
S&P GLOBAL INC. SPGI US 0.95
INTUITIVE SURG, INC. ISRG US 0.94
RECRUIT HLDG RG 6098 JP 0.89
CROWN CASTLE INTL. CCI US 0.89
ZOETIS INC. ZTS US 0.86
INTERCONTINENTAL XCH ICE US 0.85
MARSH MCLENNAN CO MMC US 0.84
ILL TOOL WORKS INC. ITW US 0.82
KDDI RG 9433 JP 0.82
BOSTON SCIENTIFIC CP BSX US 0.79
HK EX & CLEARING RG 388 HK 0.79
APPLIED MATERIALS AMAT US 0.76
SERVICENOW, INC. NOW US 0.75
ILLUMINA, INC. ILMN US 0.73
FAST RETAILING RG 9983 JP 0.73
PROLOGIS, INC. PLD US 0.71
AUTODESK INC. ADSK US 0.70
EDWARDS LIFESCIENCES EW US 0.65
VERTEX PHARMACEUTIC VRTX US 0.64
INDITEX ITX SM 0.63
ACTIVISION BLIZZARD ATVI US 0.62
MOODY'S CORP. MCO US 0.61
AMADEUS IT GRP BR-A AMS SM 0.59
INFINEON TECHNOLO N IFX GR 0.57
FIRST SOLAR, INC. FSLR US 0.57
SWEDBANK -A- SWEDA SS 0.57
HUMANA INC. HUM US 0.56
GEN MILLS INC. GIS US 0.55
MSCI INC. MSCI US 0.55
S-E BANKEN -A- SEBA SS 0.55
ORIENTAL LAND RG 4661 JP 0.55
ALIGN TECHNOLOGY I ALGN US 0.54
SPLUNK INC. SPLK US 0.54
SIEM GAM REN EN BR SGRE SM 0.54
VIVENDI VIV FP 0.54
FASTENAL CO. FAST US 0.53
O'REILLY AUTOMOTIVE ORLY US 0.53
VERISIGN, INC. VRSN US 0.53
M&T BANK CORP. MTB US 0.53
ADV MICRO DEVICES AMD US 0.53
KONE-B RG KNEBV FH 0.53
APTIV PLC APTV US 0.53
ON SEMICONDUCTOR ON US 0.53
VESTAS WIND SYST RG VWS DC 0.52
CINTAS CORP. CTAS US 0.52
EXPERIAN RG EXPN LN 0.52
WORKDAY, INC. WDAY US 0.52
FIRST REPUBLIC BANK FRC US 0.51
K L A-TENCOR CORP. KLAC US 0.51
PAYCHEX, INC. PAYX US 0.51
SINGTEL RG ST SP 0.51
SV HANDBK RG-A SHBA SS 0.51
VULCAN MATERIALS HC VMC US 0.51
PALO ALTO NETWORKS PANW US 0.50
TESLA, INC. TSLA US 0.50
GEBERIT N GEBN SW 0.50
WOLTERS KLUWER BR WKL NA 0.50
MCCORMICK & CO. MKC US 0.50
SAMPO-A RG SAMPO FH 0.50
LEGAL & GENERAL RG LGEN LN 0.49
GIVAUDAN N GIVN SW 0.49
SBA COMMUNICATIONS SBAC US 0.49
ASSA ABLOY RG-B ASSAB SS 0.48
AVALONBAY CMTYS AVB US 0.48
CENTENE CORP CNC US 0.48
KERRY GRP-A- KYG ID 0.48
WEST JAPAN RAILW RG 9021 JP 0.48
MTR RG 66 HK 0.47
VONOVIA N VNA GR 0.47
GRAINGER W W INC. GWW US 0.46
REALTY INCOME CP O US 0.46
CHUGAI PHARM RG 4519 JP 0.45
WATERS CP WAT US 0.41
 

NEW ADDITIONS:

Twenty nine stocks were added to the Index. Many of the additions are technology and communications companies. There is certainly a much larger technology bias entering the portfolio, including Splunk, Align Technology, Palo Alto Networks, Activision Blizzard and Workday.

STOCK NAME STOCK TICKER
CVS HEALTHCP CVS US
STRYKER CP SYK US
RECRUIT HLDG RG 6098 JP
KDDI RG 9433 JP
BOSTON SCIENTIFIC CP BSX US
ACTIVISION BLIZZARD ATVI US
MOODY'S CORP MCO US
MSCI INC MSCI US
S-E BANKEN -A- SEBA SS
ALIGN TECHNOLOGY I ALGN US
SPLUNK INC. SPLK US
VIVENDI VIV FP
FASTENAL CO FAST US
CINTAS CORP CTAS US
WORKDAY, INC. WDAY US
FIRST REPUBLIC BANK FRC US
K L A-TENCOR CORP KLAC US
PALO ALTO NETWORKS PANW US
GEBERIT N GEBN SW
WOLTERS KLUWER BR WKL NA
MCCORMICK & CO MKC US
LEGAL & GENERAL RG LGEN LN
SBA COMMUNICATIONS SBAC US
CENTENE CORP CNC US
KERRY GRP-A- KYG ID
GRAINGER W W INC. GWW US
REALTY INCOME CP O US
CHUGAI PHARM RG 4519 JP
WATERS CP WAT US
 

Deletions:

The constituent stocks removed from the Index are listed below. As noted earlier, some of these stocks were removed for failing to meet gender diversity criteria, or in some cases, just simply because their carbon footprint scores dropped relative to other companies. The most notable exclusion from the index is Intel Corp., which was previously a 3.5% weight in the ETF. For Canadian investors, they will also notice that the two Canadian-domiciled stocks, BCE and Rogers Communications, were removed from the Index. This means that ETHI has 100% non-Canadian exposure, which may appeal to investors looking for global diversification outside of Canada.

Removals from the Index as at May 1, 2019:

STOCK NAME STOCK TICKER
INTEL CORP. INTC US
AUTOMATIC DATA PROCESSING INC. ADP US
CHARTER COMMUNICATIONS INC. CHTR US
KEYENCE CORP. 6861 JP
CENTRAL JAPAN RAILWAY CO. 9022 JP
SHIN-ETSU CHEMICAL CO LTD. 4063 JP
BCE INC. BCE CN
KONINKLIJKE PHILIPS NV PHIA NA
COGNIZANT TECHNOLOGY SOLUTIONS CTSH US
ANALOG DEVICES INC. ADI US
FANUC CORP. 6954 JP
AUTOZONE INC. AZO US
CIGNA CORP. CI US
ROSS STORES INC. ROST US
NTT DOCOMO INC. 9437 JP
HENNES & MAURITZ AB HMB SS
FISERV INC. FISV US
EXPEDIA GROUP INC. EXPE US
FIDELITY NATIONAL INFORMATION FIS US
DOLLAR TREE INC. DLTR US
CERNER CORP. CERN US
RELX PLC REL LN
ROGERS COMMUNICATIONS INC. RCI/B CN
DIGITAL REALTY TRUST INC. DLR US
NORDEA BANK ABP NDA SS
SMC CORP/JAPAN 6273 JP
TOKYO ELECTRON LTD. 8035 JP
DENSO CORP. 6902 JP
INCYTE CORP. INCY US
CAMPBELL SOUP CO. CPB US
UNIBAIL-RODAMCO-WESTFIELD URW NA
SWATCH GROUP AG/THE UHR SW
 

Responsible Investment Committee:

The Responsible Investment Committee comprises individuals responsible for confirming and reviewing the scoring of the stocks within the Index. It is comprised of the following three people – each of which has extensive experience in socially-responsible-investing-focused screening.

Adam Verwey
Adam is Executive Director of Future Super, a fossil-fuel-free and ethical retail fund. Adam has a long history in ethical investments, with an expertise in superannuation, ethical analysis and ESG (environmental, social and governance) index portfolio construction. He is the portfolio manager for the ground-breaking Australian Fossil Fuel Free Index and the Australian Sustainability Leaders Index, both launched in 2015. Prior to Future Super, Adam was a senior manager at Australian Ethical Investment and Superannuation. From 2005 to 2014, Adam contributed to growing funds under management from AUD $300 million to over $900 million. Currently a director for the Australian Centre for Corporate Responsibility and treasurer of non-profit Climate Action Network Australia, Adam is also the chairperson and investment committee member at Grosvenor Pirie, a boutique investment company managing over $300 million on behalf of Future Super and other ethical superannuation clients.

Simon Sheikh
Simon is Managing Director of Future Super Group, an investment manager and promoter of ethical investment funds. Its flagship fund, Future Super, was launched in 2014 and is Australia’s first fossil-fuel-free and ethical retail super fund. Simon’s background includes five years as National Director for GetUp!, Australia’s leading progressive advocacy group, in which time the organization’s membership tripled to 640,000 members. Simon also sat on the inaugural board of the (now) 100,000-strong Australian Youth Climate Coalition, and was named NSW Young Professional of the Year. In addition to leading large organizations working for progressive change, Simon has worked at NSW Treasury and has provided consulting services to a wide range of organizations including Bendigo Bank, Asset Owners Disclosure Project, major unions and community groups. Simon is also a director at Grosvenor Pirie, a boutique investment company managing over AUD $400 million on behalf of Future Super and other ethical superannuation clients.

David Nathanson (BetaShares representative)
David co-founded BetaShares and is responsible for overseeing the financial infrastructure of the business and the implementation of key projects and products. He has experience in the financial services and legal industries in Sydney and New York at firms including Goldman Sachs & Co., Macquarie Bank and Freehills. He is a director of Apex Capital Partners Pty Ltd, a financial services focused investment firm. He holds a Bachelor of Commerce and a Bachelor of Laws from the University of NSW, and an MBA from Stanford Business School.

1 The ETF’s underlying index screens for qualifying equities based on a number of factors, including companies that must either have a carbon impact at least 60% lower than their industry’s average, or are engaged in activities that can help reduce carbon use by other industries.

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The Horizons Exchange Traded Products include our BetaPro products (the “BetaPro Products”). The BetaPro Products are alternative mutual funds within the meaning of National Instrument 81-102 Investment Funds, and are permitted to use strategies generally prohibited by conventional mutual funds: the ability to invest more than 10% of their net asset value in securities of a single issuer, to employ leverage, and engage in short selling to a greater extent than is permitted in conventional mutual funds. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in units of a BetaPro Product decreases in value. The BetaPro Products consist of our 2x Daily Bull and 2x Daily Bear ETFs (“2x Daily ETFs”), Inverse ETFs (“Inverse ETFs”) and our BetaPro S&P 500 VIX Short-Term Futures™ ETF (the “VIX ETF”). Included in the 2x Daily ETFs and the Inverse ETFs are the BetaPro Marijuana Companies 2x Daily Bull ETF (“HMJU”) and BetaPro Marijuana Companies Inverse ETF (“HMJI”), which track the North American MOC Marijuana Index (NTR) and North American MOC Marijuana Index (TR), respectively. The 2x Daily ETFs and certain other BetaPro Products use leveraged investment techniques that can magnify gains and losses and may result in greater volatility of returns. These BetaPro Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, among other risks, which are described in their respective prospectuses. Each 2x Daily ETF seeks a return, before fees and expenses, that is either 200% or –200% of the performance of a specified underlying index, commodity futures index or benchmark (the “Target”) for a single day. Each Inverse ETF seeks a return that is –100% of the performance of its Target. Due to the compounding of daily returns a 2x Daily ETF’s or Inverse ETF’s returns over periods other than one day will likely differ in amount and, particularly in the case of the 2x Daily ETFs, possibly direction from the performance of their respective Target(s) for the same period. Hedging costs charged to BetaPro Products reduce the value of the forward price payable to that ETF. Due to the high cost of borrowing the securities of marijuana companies in particular, the hedging costs charged to HMJI are expected to be material and are expected to materially reduce the returns of HMJI to unitholders and materially impair the ability of HMJI to meet its investment objectives. Currently, the manager expects the hedging costs to be charged to HMJI and borne by unitholders will be between 15.00% and 35.00% per annum of the aggregate notional exposure of HMJI’s forward documents. The hedging costs may increase above this range. The manager will publish, on its website, the updated monthly fixed hedging cost for HMJI for the upcoming month as negotiated with the counterparty to the forward documents, based on the then current market conditions. The VIX ETF, which is a 1x ETF, as described in the prospectus, is a speculative investment tool that is not a conventional investment. The VIX ETF’s Target is highly volatile. As a result, the VIX ETF is not intended as a stand-alone long-term investment. Historically, the VIX ETF’s Target has tended to revert to a historical mean. As a result, the performance of the VIX ETF’s Target is expected to be negative over the longer term and neither the VIX ETF nor its target is expected to have positive long-term performance. Investors should monitor their holdings in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies.

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