Huntington, a Columbus-based bank, made the jump into the ETF industry this week with the debut of an actively-managed ETF that will hold a portfolio of ecologically-focused companies. The new Huntington EcoLogical Strategy ETF (HECO) will target companies that have positioned their business to respond to increased environmental legislation, cultural shifts towards environmentally conscious consumption, and capital investments in environmentally oriented projects.

Under the Hood

HECO will maintain a portfolio covering a wide range of sectors, as opposed to being limited exclusively to cleantech type stocks. Rather, the strategy will seek to identify companies that demonstrate environmental stewardship, and provide products and services that advance green practices and show evidence of sustainability. But the manager will not focus solely on identifying stocks with positive environmental, social and governance (ESG) factors; it will also seek to pick out stocks that are positioned to benefit from changing laws, regulations and consumer behavior .

Many green funds emphasize nascent technologies like wind and solar because they are clean, without regard to whether that's a logical investment, said Randy Bateman, Huntington's chief investment officer and president of Huntington Asset Advisors. Our approach looks at those opportunities, but then applies logic around whether or not that company is producing products that are affordable by broad markets.

Indeed, clean technology companies have been some of the worst performers over the past few years. Some of the ETFs in the Alternative Energy ETFdb Category, which includes both solar power and wind power products, have lost close to 80% of their value over the past three years.

Many of the components of the new ETF are well-known U.S. stocks; the initial holdings include Whole Foods (5.6% of assets), eBay 5.6%), Starbucks (2.9%), Johnson & Johnson, Walt Disney, Ford Motor Company and T. Rowe Price. The portfolio doesn't include any oil or coal companies.

According to the prospectus, HECO may invest up to about 35% of assets in ADRs of foreign companies.The fund will be managed by Brian Salerno, a Vice President and Senior Portfolio Manager with Huntington Asset Advisors. Huntington had also previously filed details on an actively-managed U.S. Equity Sector Rotation Strategy (HUSE) that would seek to tilt exposure towards corners of the domestic stock market that are expected to outperform.

Socially-Responsible ETFs

The investment thesis behind HECO is fairly straightforward: by targeting stocks that are positioned to benefit from the mega trend of eco-friendliness and greater awareness of environmental factors, the portfolio seeks to hold stocks that will outperform their peer groups over the long run. Companies that are ahead of the curve in terms of environmental stewardship may benefit from the evolving regulatory landscape and outperform their peer group.

There are a handful of other socially-responsible ETFs out there that cast a wide net across sectors instead of focusing on clean technology companies. HECO, however, will be the first actively-managed ETF with this investment objective. That could be appealing to investors who prefer some degree of management discretion in determining eco-friendliness, instead of a purely rules-based framework.

  • iShares KLD Select Social Index Fund (KLD)
  • iShares KLD 400 Social Index Fund (DSI)
  • North America Sustainability Index ETF (NASI)

Expenses on the above ETFs, all of which seek to passively replicate an index, range from 0.50% to 0.55%. HECO, which is actively managed, will charge a net expense ratio of 0.95%.

Disclosure: No positions at time of writing.

Related Articles
  1. Chart Advisor

    3 Ways to Trade the Rising Volatility

    With volatility increasing in the markets, many are turning to these three volatility-capturing exchange-traded products.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares US Basic Materials

    Learn about the iShares US Basic Materials exchange-traded fund, which invests in the equities of chemicals, metals and industrial gas companies.
  3. Mutual Funds & ETFs

    ETF Analysis: Ultra Oil & Gas

    Find out more about the ProShares Ultra Oil & Gas exchange-traded fund, the characteristics of the ETF and the suitability and recommendations for the fund.
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Commodity Tracking

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  6. Mutual Funds & ETFs

    Comparing ETFs Vs. Mutual Funds For Tax Efficiency

    Explore a comparison of mutual funds and exchange-traded funds, or ETFs, and learn what makes ETFs a significantly more tax-efficient investment.
  7. Mutual Funds & ETFs

    ETF Analysis: Vanguard Small-Cap Value

    Find out about the Vanguard Small-Cap Value ETF, and explore detailed analysis of its characteristics, suitability, recommendations and historical statistics.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Corp Bd

    Learn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
  9. Insurance

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares 10-20 Year Treasury Bond

    Learn about the iShares 1-20 Year Treasury Bond ETF and its holdings, and understand why investors may be better served to look at other bond funds.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!