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A New S&P 500 ETF That Excludes Fossil Fuels

ETF Professor

These are not go-go days for producers of fossil fuels. Not only are oil prices residing at multi-year lows, but coal is in the tank with several coal companies already declaring bankruptcy and perhaps more to follow.

Additionally, the “ex-fossil fuels” investment theme is gaining momentum. Socially responsible investing and the corresponding exchange-traded funds have, over time, notched mixed records of success. However, with investors and news observers hearing so much about global climate change in recent years, ETF issuers are bringing relevant products to market.

On Tuesday, State Street Global Advisors (SSgA), the third-largest U.S. issuer of ETFs, introduced the SPDR S&P 500 Fossil Fuel Free ETF (NYSE: SPYX).

Related Link: Shorts Pile Into Some Of This ETF's Holdings

A Closer Look At SPYX

The SPDR S&P 500 Fossil Fuel Free ETF is essentially an S&P 500 derivative product that, as its name implies, excludes companies that are producers of fossil fuels.

SPYX tracks the S&P 500 Fossil Fuel Free Index, which holds “companies that do not own fossil fuel reserves. For purposes of the composition of the Index, fossil fuel reserves are defined as economically and technically recoverable sources of crude oil, natural gas and thermal coal but do not include metallurgical or coking coal, which are used in connection with steel production,” .

While it obviously does not replicate the traditional S&P 500, SPYX gives investors more-than-adequate exposure to the benchmark U.S. equity index, as the new ETF holds 474 stocks. Including Apple Inc. (NASDAQ: AAPL), four of the ETF's top 10 holdings are technology stocks, while three are financial services names.

Excluding Fossil Fuels

ETFs that exclude fossil fuels producers are debuting at a time when some institutional investors are dumping stakes in fossil fuels companies, and some younger investors have said they are committed to eschewing traditional energy producers in their portfolios.

For example, Etho Capital launched the Etho Climate Leadership U.S. ETF (NYSE: ETHO) in late November. ETHO is the “first broad based, diversified, socially responsible and fossil-free exchange-traded fund that does not have exposure to the energy sector,” .

In September, ProShares launched the ProShares S&P 500 Ex-Energy ETF (NYSE: SPXE), although that ETF is not so much a socially responsible fund as it is an S&P 500 alternative that excludes energy stocks while increasing weights to other sectors.

Rapid erosion in the energy sector's market value has forced the group to the seventh spot in the regular S&P 500 at a weight of just under 7 percent. SPXE redistributes most of that 7 percent to tech, financials, healthcare and discretionary names. Energy is the worst performing sector in the S&P 500 this year. 

SPYX charges 0.2 percent a year, or $20 per $10,000 invested.

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