The ARK Transparency ETF (CTRU) debuted last month as the newest exchange traded fund in the ARK Investment Management stable.
CTRU is just the third index-based ETF in the ARK lineup — it follows the Transparency Index — and that could be a benefit to investors at a time when there’s increasing scrutiny on environmental, social, and governance (ESG) scoring.
“The many ways that sustainability is being applied to investing have made it difficult to come to a broadly agreed-upon understanding of what sustainable investing means and its scope,” says Morningstar analyst Jon Hale. “As a result, much of the criticism stems from a mismatch between what a critic thinks sustainable investing is or should be about.”
CTRU avoids those debates and potential controversies by focusing on the concept of transparency.
“ARK believes that transparency enhances the performance of companies while benefiting the well-being of people. Transparency implies openness, communication, accountability and trust,” according to the issuer.
By focusing on transparency rather than following a dedicated ESG mandate, CTRU can actually get investors to some familiar ESG and sustainability destinations. For example, the fund doesn’t hold any fossil fuels producers, and its member firms report 95% fewer environmental missteps than the average member of the S&P 500.
Additionally, a case can be made that CTRU brings more to the table. For example, its components are significantly less likely to engage in financial fraud than a typical company. Indeed, there is something to the notion that sound corporate stewardship can lend itself to enhanced sustainability characteristics.
“The notion that ESG issues can affect companies financially is not inconsistent with the view that sustainable investors can achieve a broader impact on people and planet. In fact, the two ideas are closely connected,” adds Hale.
The newly minted CTRU holds 100 stocks with median market value of $22 billion. Single stock risk isn’t an issue because none of CTRU’s holdings exceed a weight of 1.58%. Overall, CTRU represents a fresh avenue for accomplishing an important objective in virtuous investing.
“If you are an investor who wants your investments to have some broader positive impact on the world, the way to do it is by helping convince companies to address the material ESG issues they face,” concludes Hale.
A case can be made that, at the end of the day, the more transparent a company, the more likely it is to address its specific ESG issues.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.