When one considers exchange-traded funds, looking for the best ETFs, to buy that will make your world a better place, a fair number of investors immediately gravitate to those funds with an ESG (environmental, social, and governance) bent.
However, for this article, I’ll come at it from a perspective of innovation.
For example, back in the horse and buggy days, Henry Ford’s Model T was an innovation that made people’s lives easier. Had it been public at the time, Ford’s (NYSE:F) stock would have been a perfect candidate.
To make matters interesting, I will suggest seven ETFs to buy that are innovative and have the word innovation in the fund name. Further, I’ll also ensure that my selections meet most standard ESG investing principles.
This way, readers get two investing themes for the price of one.
In addition, I’ll ensure that this list of best ETFs to buy is diversified by ETF providers. Only one fund per company.
- Ark Innovation ETF (NYSEARCA:ARKK)
- Goldman Sachs Innovate Equity ETF (NYSEARCA:GINN)
- ROBO Global Healthcare Technology and Innovation ETF (NYSEARCA:HTEC)
- First Trust Innovation Leaders ETF (NYSEARCA:ILDR)
- TrimTabs Donoghue Forlines Risk Managed Innovation ETF (CBOE BZX:DFNV)
- Main Thematic Innovation ETF (CBOE BZX:TMAT)
- Global X China Innovation ETF (NASDAQ:KEJI)
Here’s to a better world!
Best ETFs to Buy: Goldman Sachs Innovate Equity ETF (GINN)
Assets Under Management: $468 million
Expense Ratio: 0.5%, or $50 per $10,000 invested annually
This ETF has only been in existence since November 2020. Nevertheless, the fact that it’s gathered almost half a billion dollars in less than eight months says everything about the interest investors has in innovation stocks.
GINN is passively managed to track the Solactive Innovative Global Equity Index. It has 458 holdings, with the top 10 accounting for 18.8% of the portfolio. The stocks held are large, with a weighted average market capitalization of $307 billion. North American companies account for 72% of the ETF’s assets. Next in line at 10% is Europe, excluding the United Kingdom. In third place is Latin America with 9.6%.
The ETF and index focus on five key disruptive themes: Data-Driven World, Finance Reimagined, Human Evolution, Manufacturing Revolution and New Age Consumer.
Tesla’s (NASDAQ:TSLA) in the ETF’s top 10, and slightly higher on its list is Microsoft (NASDAQ:MSFT), the third-largest holding at 2.1%, and the highest weighting for the Data-Driven World sub-theme.
Microsoft also makes the iShares ESG Aware MSCI USA ETF (NYSEARCA:ESGU) top 10.
ROBO Global Healthcare Technology and Innovation ETF (HTEC)
Assets Under Management: $230 million
Expense Ratio: 0.68%
This particular ETF tracks the performance of the ROBO Global Healthcare Technology and Innovation Index. It generally holds 50 to 100 healthcare technology and innovation companies. At the moment, it has 84 holdings.
Of the top 10 holdings, I would say that all of the companies represent innovative ideas that are changing the world.
Intuitive Surgical (NASDAQ:ISRG) and its da Vinci Surgical System were first approved by the Food and Drug Administration for general laparoscopic surgery in 2000. However, it continues to install its robotic surgical platform in hospitals around the world.
According to CapitalHealth.com, prostate cancer surgeries using da Vinci for the procedure averaged better outcomes. Furthermore, women are choosing da Vinci for minimally invasive hysterectomies. ESGU also holds ISRG.
Best ETFs to Buy: TrimTabs Donoghue Forlines Risk Managed Innovation ETF (DFNV)
Assets Under Management: $85 million
Expense Ratio: 0.69%
DFNV tracks the performance of the TrimTabs Donohue Forlines Rick Managed Free Cash Flow Innovation Index. The index provides exposure to U.S.-listed companies that generate healthy free cash flow while at the same time spending on research and development.
TrimTabs, the people behind this ETF, believe DFNV should be part of a core portfolio of equity holdings and not just considered a technology play.
“R&D spending combined with strong free cash flow generation have been responsible for a subset of corporations’ emergence as new leaders in global markets; DFNV includes companies across all sectors that maintain high R&D intensity and strong free cash flow generation,” states the ETFs home page.
“We believe that the combination of our R&D /Free Cash Flow Innovation with Risk Management is a breakthrough in Index and ETF construction.”
Of the top 10 holdings in DFNV, I’m going to go with ServiceNow (NYSE:NOW) as the innovation game-changer of the bunch. Covid-19 demonstrated why the digitalization of businesses of all sizes is essential to future success. Its cloud-based software enables firms to optimize their digital workflows.
Ark Innovation ETF (ARKK)
Assets Under Management: $25.5 billion
Expense Ratio: 0.75%
If you’re not familiar with this ETF, you probably shouldn’t be reading this article because Cathie Wood, the manager of this actively managed fund, is a hot commodity these days. Google the words “Cathie Wood” with the quotation marks in the search, and you get millions of results.
As for her massive ETF, ARKK currently has 50 holdings, with Tesla its top holding at 10.14%.
Of the names in its top 10, Tesla would definitely be a stock I would consider innovative. It also makes the top 10 holdings of the ESGU, so it’s ESG-friendly as well.
Of the other names in its top 10, I would say Teladoc Health (NYSE:TDOC), the virtual healthcare company, is an excellent example of innovation personified. Covid-19 essentially cemented its business model.
Best ETFs to Buy: First Trust Innovative Transaction & Process ETF (ILDR)
Assets Under Management: $3.3 million
Expense Ratio: 0.75%
The First Trust ETF got its start in May 2021. This explains the small number of net assets it’s gathered. ILDR is also actively managed.
According to the fund’s fact sheet, it “seeks to accomplish its objective by investing at least 80% of its net assets (plus any borrowings for investment purposes) in common stock and depositary receipts issued by U.S. and non-U.S. companies that may benefit from the development or application of scientific and technological innovation.”
At present, it owns 96 stocks, with the top 10 holdings accounting for 25% of the total portfolio. The U.S. accounts for 88.74% of the overall weighting. The next highest is The Netherlands at 2.89% and in the third spot is Japan at 1.59%.
As one would expect, the top industries represented in the fund are from the technology and healthcare sectors.
Of the top 10 holdings, my vote for the company most changing the world would be Amazon.com (NASDAQ:AMZN). It might seem odd that I would consider a company that sells things that ultimately will end up in landfills and which has plenty of accusations of labor issues, but investors know that Amazon is so much more than that.
The median market cap of the ETF holdings is $23.7 billion, a relatively large number but not too large as to stifle growth. It will be interesting to see how this performs against Cathie Woods’ ARKK ETF.
Global X China Innovation ETF (KEJI)
Assets Under Management: $4.4 million
Expense Ratio: 0.75%
Like many innovation ETFs, KEJI is actively managed on a sub-advisory basis by Mirae Asset Global Investments (Hong Kong) Limited. Mirae’s parent, Mirae Asset Financial Group, also owns Global X.
The objective of the ETF is simple. It wants to invest in China’s biggest innovation disruptors. For those of you not sure about investing in the country, KEJI is not for you.
However, if China’s an important part of your overall investment strategy, it provides an interesting way to gain exposure to the country while also leaning on innovation and disruption as part of that strategy.
At present, it has 43 holdings with healthcare (22.2%), technology (21.9%), and industrials (21.1%) in the top three spots by sector weightings. Its top 10 holdings represent around 45% of the portfolio.
While some of the usual suspects are in the top 10, such as Alibaba (NYSE:BABA), if we’re talking innovation, I really like Han’s Laser Technology Industry Group Co. Ltd. One of the world’s largest laser manufacturers, it’s been a public company since it listed its shares on the Shenzhen Stock Exchange in 2004. It accounts for 4.62% of KEJI’s net assets.
This one’s worthy of your consideration.
Best ETFs to Buy: Main Thematic Innovation ETF (TMAT)
Assets Under Management: $73 million
Expense Ratio: 1.65%
The first question most investors would have about this fund is the expense ratio. Why is it so high? Well, page one of its prospectus breaks it down.
Management fees account for 0.65% of the total. Other expenses, which run the gamut from keeping onside with regulators to mailing prospectuses and statements, is 0.67%. On top of that, there are acquired fund fees and expenses from the ETFs TMAT invests in. That sucks up another 0.66% for a total of 1.98%. Subtract a fee waiver of 0.33%, and you get to the 1.65% figure above.
However, that’s all a moot point. Main Management ETF Advisors LLC has agreed to keep the fee capped at a maximum of 0.99% until July 31, 2031. So, for analysis, consider the overall fee to be 0.99%.
What does TMAT give you for 0.99%? Again, I’ll let the prospectus speak for itself.
“The Fund utilizes a ‘fund of funds’ structure to invest in theme-based equity exchange traded funds (“ETFs”). The Fund seeks to achieve its objective through dynamic thematic rotation. The Adviser focuses its research primarily on identifying emerging, disruptive, and innovative themes that have a large market demand or ‘addressable market,” page 2 of the prospectus states.
Actively managed, the ETF seeks to invest in 5-15 thematic ETFs that it feels will get the job done. It is free to rebalance based on recommendations by the fund’s investment committee.
Currently, it holds 12 ETFs, including two from Ark Invest.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.