In First Year, Nifty Vegan ETF Struts Its Stuff

If it feels like there's an exchange-traded fund for everything, it's because that statement is pretty close to being accurate. There's even a fund for vegan, climate-conscious investing: The US Vegan Climate ETF VEGN.

What Happened: VEGN, which celebrated its first birthday last week, tracks the Beyond Investing US Vegan Climate Index. That benchmark is an offshoot of the Solactive US Large Cap Index and is designed to provide investors with exposure to companies “zero animal exploitation and zero fossil fuel, represents a portfolio of stocks with lower greenhouse gas emissions, waste generation and fresh water utilisation as compared to the S&P500 Index,” according to Beyond Investing.

Why It's Important: What makes VEGN important and relevant today is that the upstart fund is answering a crucial question often asked about environmental, social and governance (ESG) ETFs: The ability to outperform standard equity funds.

“Since inception, VEGN has returned 27.69% total return on market price against the S&P500 Index’s 19.75% through to end August 2020. Performance was particularly strong in August, when the ETF outstripped the S&P500 Index by 2.12% on the same basis,” according to Beyond Investing.

VEGN implements an array of impact metrics, including greenhouse gases, water utilization, water generation, social good, environmental benefit, environmental harm and social harm, in constructing its portfolio. Meeting those criteria is, for many companies, difficult and as a result, VEGN has 281 holdings. That's comparatively less than most broad market ESG funds.

“Since its conception, Beyond Investing has always avoided companies involved in unethical practices towards animals, people, and the planet,” said VEGN's issuer. “Its stringent screening process weeds out animal exploitation, child labor, high carbon intensity, the burning or extraction of fossil fuels, single-use plastics, and any other activity deemed to have a significant negative impact on the environment.”

What's Next: Like many ESG ETFs, VEGN, by way of what it excludes, ends up being overweight technology and other growth sectors, but that's a strategy serving investors well this year. Five of the ETF's top 10 holdings, including Apple AAPL and Microsoft MSFT, hail from the technology sector.

However, VEGN has some utility beyond tech exposure, including meeting emerging trends.

“Similarly, demand for meat and dairy products has declined for the first time in nine years,” notes Beyond Investing. “Leaving aside the documented links between environmental destruction, animal exploitation, and the emergence of COVID-19, slaughterhouse stoppages because of high worker infection rates, resulting in on-farm killing and disposal of animals, have been Public Relations disasters for the industry.  Conversely, sales of plant-based products have been booming.”