CHGX: A Solid U.S. Equity ESG ETF

seekingalpha02-07

AXS Change Finance ESG ETF is a U.S. large cap blend fund that uses a proprietary ESG methodology to select companies for its portfolio.The fund allows investors to avoid companies engaged in harmful ...

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href=https://seekingalpha.com/article/4667964-chgx-a-solid-us-equity-esg-etf><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>AXS Change Finance ESG ETF is a U.S. large cap blend fund that uses a proprietary ESG methodology to select companies for its portfolio.The fund allows investors to avoid companies engaged in harmful ...</p>\n\n<a href=\"https://seekingalpha.com/article/4667964-chgx-a-solid-us-equity-esg-etf\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":".SPX","symbol_name":"S&P 500 Index","start_time":0,"source_url":"https://seekingalpha.com/article/4667964-chgx-a-solid-us-equity-esg-etf","article_id":"2409538282","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2409538282","pubTimestamp":1707260617,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"AXS Change 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uses a proprietary ESG methodology to select companies for its portfolio.The fund allows investors to avoid companies engaged in harmful activities and focuses on companies that make a positive global impact.ESG investing is a growing but evolving space, with risks and uncertainties as well as potential payoffs for investors.   pcess609/iStock via Getty Images AXS Change Finance ESG ETF (NYSEARCA:CHGX) is a U.S. large cap blend exchange-traded fund, or ETF, that uses a proprietary \"Isolated ESG Risk-Factor Investment Methodology.” The methodology employs 125 ESG criteria to provide exposure to a portfolio of 100 companies that meet their ESG standards. This fund avoids investing in companies that the fund deems \"engaged in activities harmful to people and the planet.\" A subset of investors is interested in ESG & Impact funds, and it can be difficult to parse which funds are truly making an impact and which are simply trying to check a box. The AXS Change Finance ESG ETF, uses an in-depth ESG analysis, has a unique portfolio, and has offered reasonable returns compared to the major indexes. We rate CHGX as a “buy” for its use as a highly impactful ETF focused on large to mid-cap U.S. equity exposure. Why Invest in ESG & Impact Funds? The first reason some people invest in these types of funds is to divest from companies that do not align with their personal values, or that are perceived to have a negative impact on the planet, people, or have destructive corporate policies. Traditionally, some of the areas that have many have sought to divest from include tobacco production, oil, gas, or other highly fossil fuel emitting industries, and weapons-producing companies. Another reason some invest in these funds is to go further than just divesting from companies that they believe are harmful. They also wish to invest in companies that are part of the solution. Renewable energy companies are a good example of these. Lastly, companies that take the initiative to convert from being a less highly-rated ESG company (\"Brown\") to a highly-rated ESG company (\"Green\") may be able to achieve superior returns in the post \"ESG Awakening\" Era, which we are currently in. Below is a chart that illustrates the improvement in returns when a company goes from “Brown” to “Green.”   Kenan Institute of Private Enterprise Analysis of CHGX CHGX boasts a robust proprietary framework to analyze company ESG characteristics that go far beyond that of standard ESG funds as it considers 125 different factors. This is in contrast to funds like the SPDR® S&P 500® ESG ETF (EFIV), which focuses primarily on excluding companies that derive substantial revenue from tobacco, weapons, or fossil fuels. Some of the additional company criteria the CHGX assesses include: land use and biodiversity, forced labor and slavery, corruption, and water conservation. See below for several examples of ESG risk factors the fund evaluates:   Change Finance Another way we can see the fund's dedication to ESG analysis rather than just replicating the benchmark with some exclusions is in how much its portfolio differs from U.S. large & mid cap benchmarks. We'll be comparing CHXG to the Russell 1000 rather than the S&P 500, due to CHXG's larger allocation to mid-cap equities. When comparing the top 25 holdings of CHXG to the Russell 1000, we see that only five of the holdings are the same; Advanced Micro Devices (AMD), Nvidia (NVDA), Broadcom (AVGO), Merck (MRK), and AbbVie (ABBV). In contrast, if we compare the top 25 holdings of EFIV to the S&P 500, we see that 19 out of the 25 are the same. This much larger differential in holdings shows that CHXG’s ESG evaluation is having a much larger impact than EFIV. This impact on the fund's holdings is demonstrated in how CHGX invests in ESG differently. The way a typical large fund arrives at its ESG scores is by comparing companies in the same industry relative to each other, rather than based on their absolute impact on the world. This does not take into account that different industries inherently have greater negative impacts. For example, this can cause the best scoring weapons-producing company to have the same score as the best scoring renewable energy producer. In contrast, CHGX does not score companies relative to their peers, but instead invests only in companies it sees having the highest positive impact in absolute terms. Additionally, CHGX will not invest in a firm unless it meets all of its requirements. This means a company must meet a minimum threshold score on all the categories it is graded on, so having a very high score in one area does not make up for a very low score in another. When it comes to performance, CHGX lags behind the major indices, but not in an earth-shattering way. This is not surprising since the fund only contains four out of the Magnificent 7 (it doesn't hold Tesla, Meta, and Amazon.) Additionally, the fund’s total allocation to the Magnificent 7 only comprises 5% of the portfolio versus around 26% for the Russell 1000. What is surprising is that considering how much the allocation to the Magnificent 7 has contributed to returns of the U.S. Large Cap indices, CHXG only lags the S&P 500 (SP500) and the Russell 1000 by 8-12% in cumulative total returns since 2018. See CHGX’s performance versus Russell 1000 and S&P 500 below: Data by YCharts When compared to other ESG funds such as the Avantis Responsible US Equity ETF (AVSU) and the Calvert US Large-Cap Core Responsible Index ETF (CVLC), we see some similarities and differences. See the table below for some of the metrics that are most relevant, data provided by YCharts.             Fund Inception Date Total Assets Under Management Number of Holdings Weighted Average Market Cap Percent of Assets in Top 10 Holdings Dividend Yield Expense Ratio   CHGX 10/9/2017 $134,154,612 101 $96,253 11% 0.9% 0.49%   AVSU 3/15/2022 $217,377,552 1296 $82,817 22% 1.2% 0.15%   CVLC 1/30/2023 $257,529,691 776 $178,997 31% 0.9% 0.15%   Click to enlarge CHGX has a significantly longer track record, is on the lower end in terms of assets under management, or AUM, and also has a significantly more concentrated portfolio. Its dividend yield is essentially in line with its peers. The most obvious difference between CHGX and the others is the expense ratio. Although high, when considering the in-depth and proprietary ESG analysis that goes into CHGX, as well as the fact that it is not closely managed to a major benchmark, this level of expense is justifiable. Risks of ESG Investing 1. Exclusion of certain companies may lead to worse performance - ESG funds have a security selection process that doesn’t focus on companies that have or will generate the highest returns. Therefore if a company that has high returns is excluded from selection based on other factors, the performance of the portfolio may suffer. 2. Evolving area of investing - ESG and Impact investing is a relatively new area of investing that is still developing. Thus there may be terminology that investors do not have a firm grasp of that could cause confusion when evaluating investments. Also, industry standards could change, creating uncertainty. One example of this is the still- developing arena of ESG reporting standards, both on a government and industry level. Some governments do not require any ESG disclosures or data, while others do, and what they require is different. Additionally, there are several key ESG industry reporting frameworks that are still working to coalesce over best practices. Conclusion  Despite its high expense and lagging performance compared to major indexes, AXS Change Finance ESG ETF shines in its rigorous ESG evaluation, creating a concentrated and unique portfolio relative to peers and has a more established history. We rate CHGX a buy when looking through ESG and Impact exposures in the U.S. Equity ETF space.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2409538282"}