History is being made. Huntington Strategy Shares is launching the very first ecologically focused actively traded exchange traded fund (ETF). The fund is so groundbreaking that the SEC didn't quite know what to make of it, and took two years to sign off.
It's understandable. The EcoLogical Strategy ETF (HECO) is riding the wave of two very new but rapidly expanding investing classes.
First, actively managed ETFs have only a few years' history on the exchanges and were most recently highlighted by Bill Gross' Total Return fund back in March. Many investors are still becoming aware of their existence, and cautious investors who have waited to see how they perform are quickly warming to the idea.
Actively managed ETFs trade like passive ETFs, which is to say they can be bought and sold like stocks on the market, even shorted. Shares can be purchased through personal and online brokers as well as financial advisors.
Secondly, socially conscious investing is exploding in the marketplace, already surpassing $3 trillion in investments from mutual and actively managed funds.
The marriage of these two was only a matter of time. And indeed, Huntington Strategy has beaten a number of other parties to the finish line. Morgan Stanley, among others, is still waiting for the final word from the SEC on their own "green" active ETFs.
Profit is key
In an interview with Kapitall, Randy Bateman, President and CIO of Huntington Funds emphasized the fund's strict top-down approach to stock picking that they use in all investments.
The stock picking process initially starts by screening for three key strengths in a firm:
- Credit worthiness-solvency
- Quality of management-economic value added, and a thorough assessment into management's decision-making skills
- Valuation-strong quantitative data that includes demonstrated growth, profit, and return on capital
He adds that in screening for ecologically focused companies for the EcoLogical Strategy ETF, making disciplined and logical investments is the forefront objective.
Huntington has no interest of targeting clean tech or alternative energy simply because they tend to encompass the image of "green." Instead, companies must demonstrate environmental leadership, be socially responsible, and offer products and services that advance green practices.
"We believe the companies we select are positioned to take advantage of continuing changes in laws, consumer behaviors and business investments, which have the potential to result in competitive advantages over other, less environmentally friendly companies" (via Huntington's FAQ sheet).
For more detail on the investment strategy, click here.
Business section: Investing ideas
The EcoLogical Strategy ETF (HECO) launches Wednesday, June 20th. We list below the ETF's top holdings, as disclosed in the interview dated June 18, 2012.
Do you think this new active ETF trend and environmentally focused investing trend will continue to gain traction? (Click here to access free, interactive tools to analyze these ideas.)
1. The Hain Celestial Group (HAIN): Together with its subsidiaries, manufactures, markets, distributes, and sells natural and organic food, and personal care products in the United States and internationally. Market cap at $2.39B, most recent closing price at $53.39.
2. Whole Foods Market (WFM): Engages in the ownership and operation of natural and organic food supermarkets. Market cap at $16.8B, most recent closing price at $91.54.
3. eBay (EBAY): Provides online marketplaces for the sale of goods and services, as well as other online commerce, platforms, and online payment solutions to individuals and businesses in the United States and internationally. Market cap at $51.82B, most recent closing price at $40.13. ""What's more socially conscious than selling something that's already made?""
4. Questar (STR): Operates as an integrated natural gas holding company. Market cap at $3.61B, most recent closing price at $20.26.
5. Spectra Energy (SE): Engages in the ownership and operation of a portfolio of complementary natural gas-related energy assets in the United States and Canada. Market cap at $18.09B, most recent closing price at $27.71.
6. BorgWarner (BWA): Engages in the manufacture and sale of engineered automotive systems and components primarily for power train applications worldwide. Market cap at $7.24B, most recent closing price at $63.17.
7. LKQ (LKQ): Provides replacement parts, components and systems needed to repair vehicles (cars and trucks). Has a focus on used, recycled and refurbished products. Market cap at $5.2B, most recent closing price at $35.27.
8. Johnson & Johnson (JNJ): Engages in the research and development, manufacture, and sale of various products in the health care field worldwide. Market cap at $179.75B, most recent closing price at $65.45.
9. Starbucks (SBUX): Operates approximately 16,858 stores, including 8,833 company-operated stores and 8,025 licensed stores. Market cap at $39.69B, most recent closing price at $52.33.
10. NextEra (NEE): Engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. Market cap at $28.16B, most recent closing price at $67.51.
11. Teradata (TDC): Provides enterprise data warehousing solutions, including enterprise analytic technologies and services, and integrated marketing software. Market cap at $11.69B, most recent closing price at $69.29.
12. Costco Wholesale (COST): Operates membership warehouses that offer a selection of branded and private label products in a range of merchandise categories in no-frills, self-service warehouse facilities. Market cap at $38.84B, most recent closing price at $89.83.
13. Walt Disney (DIS): Operates as an entertainment company worldwide. Market cap at $84.33B, most recent closing price at $47.18.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Disclosure: Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Interview June 18, 2012