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A vegan ETF just launched, and its holdings may surprise you

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A vegan ETF just launched, and its holdings may surprise you

ETFs are going vegan.

A new vegan-themed exchange-traded fund has hit the New York Stock Exchange, trading under the name U.S. Vegan Climate ETF (VEGN).

Launched on Sept. 10, the ETF costs 60 basis points to own and tracks Beyond Investing's U.S. Vegan Climate Index, which itself tracks an index of 495 of the largest-capitalization companies in the U.S. stock market.

But Beyond's strategy is to be more selective, excluding companies that harm animals, are involved in animal testing or produce animal-derived products. It also excludes companies tied to fossil fuel use and production, military and defense, and human rights abuses, according to its official factsheet.

That strategy gets at a rapidly growing part of the ETF market: investing based on ESG, or environmental, social and governance factors. The idea is to exclude companies that don't meet a set of fairly rigid criteria around corporate social responsibility from certain ETFs in the interest of clear-conscience profits.

Given that, however, the vegan ETF's holdings aren't exactly what investors may be expecting, says Todd Rosenbluth, director of ETF and mutual fund research at CFRA.

"The name of this tries to get you in the door, but when you finally look under the hood and you see what's there, you might be quite surprised," he said Monday on CNBC's "ETF Edge."

While the vegan ETF does hold shares of newly public protein-substitute maker Beyond Meat in its portfolio, its other holdings reflect a different part of the market that may not read as explicitly "vegan" — defined by The Vegan Society as a way of life that avoids exploitation of and cruelty to animals as much as possible — despite meeting the ETF's criteria.

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Its biggest holdings are the stocks of technology giants Apple, Microsoft, Facebook, AT&T and Intel, which together make up roughly 20% of the portfolio.

That's because "there aren't that many publicly traded vegan companies out there where you can actually make up an index," Tom Lydon, editor and proprietor of ETFTrends.com and the president of Global Trends Investments, said in the same "ETF Edge" interview.

"There's a big battle in the ETF space. Everyone's battling for assets. I think there's a lot of marketing. There's a lot of hype," Lydon said.

Even so, VEGN has attracted nearly $4 million in assets since its launch last week. The ETF has also climbed over 1% since its debut.

And, despite what people may say about its name, the fund primarily serves as a solution to the fact that "vegans and environmentalists have nowhere to go in the stock market to find a fund that is acceptable to their principles," Claire Smith, CEO of Beyond Investing, told CNBC in an email Monday.

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In general, stocks of companies that make specifically vegan products are "slim pickings" in today's market, leaving VEGN's managers to cross-reference the available public companies with their rigid criteria, Smith wrote.

"This will change however," Smith wrote, citing her ETF's inclusion of Beyond Meat despite it not being a top 500 stock. "We want to add these stocks into the ETF just as soon as we possibly can, and so address the underweights that we have to the consumer sector, which is frankly riddled with animal exploitation."

VEGN was down less than 1% in early Tuesday trading.

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