BlackRock has launched a new thematic equity ETF in the US providing global exposure to companies with recent technological innovations that are helping to address the climate transition.
The ETF targets companies with recent innovations aimed at addressing climate change.
The iShares Breakthrough Environmental Solutions ETF (ETEC US) has been listed on Nasdaq with an expense ratio of 0.47%.
According to BlackRock, the fund enables investors to express a high-conviction view on emerging environmental technologies in the early stages of adoption.
Specifically, the strategy targets innovations that can be classified into one of the following eight themes: energy efficiency, green buildings, green transportation, pollution prevention and reduction, renewable energy, water, resource efficiency, and sustainable agriculture.
The ETF is linked to the Morningstar Global Emerging Green Technologies Select Index which combines quantitative screens with analysts’ equity research in a process that evolves each year to identify new companies delivering innovative solutions.
The index is constructed from a broad universe of developed and emerging market stocks with market capitalizations above $300 million and average daily trading volumes greater than $2m.
The methodology first conducts a light ESG screen by removing violators of UN Global Compact principles as well as companies with operations linked to controversial weapons, tobacco, civilian firearms, thermal coal, and oil sands.
Index provider Morningstar then utilizes its analyst research to screen for companies deriving at least 25% of their revenue from products or services based on ‘emerging green technologies’ that fit into at least one of the eight themes mentioned above.
A product or service, and its related technology, will be classified as emerging if it falls into one of the first three adoption stages of the Rogers Innovation Adoption Curve. Created by Professor Everett Rogers, the curve is a theory that attempts to explain the rate at which the population adopts a new product, service, or technology over time. The five adoption stages of the curve are Innovators, Early Adopters, Early Majority, Late Majority, and Laggards.
Morningstar then assigns an ‘Innovation Score’ to each eligible company with higher scores reflecting that a firm derives a greater percentage of its overall revenue from products or services linked to emerging green technologies, its products or services on average are in earlier stages of the Rogers Innovation Adoption Curve, or both. Innovation scores run from 0 to 3; firms with scores above 1.5 are classified as ‘Tier 1’ while firms with scores below 1.5 are assigned to ‘Tier 2’.
All Tier 1 stocks are selected for inclusion. If the index contains less than 50 constituents, the methodology also selects the Tier 2 stocks with the highest Innovation Scores until the threshold is met.
Constituents are weighted by float-adjusted market capitalization subject to a single stock cap of 6%.
As of 29 March, stocks from the US accounted for a little over a quarter (26.5%) of the index weight with the next-largest country exposures being China (22.1%), Japan (11.1%), Germany (6.6%), and Switzerland (6.4%).
Companies classified to the industrials sector dominated the index with a combined weight of 40.6% followed by information technology (27.9%), consumer discretionary (18.1%), and materials (7.2%).
Notable positions included Tesla (5.4%), E.ON Next (5.0%), Yaskawa Electric (4.9%), Nibe Industrier (4.6%), and Samsung SDI (4.5%).