Personal Finance

This new fund excludes certain industries that may harm people or the planet

Key Points
  • The Ark Transparency ETF includes 100 companies that practice corporate transparency.
  • The fund is based on an index that excludes certain industries that may harm people or the planet.
  • The fund's launch comes even as more passive investment strategies are popping up in the ESG and socially responsible investing space.

In this article

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A new exchange-traded fund aims to give investors a way to turn corporate transparency into tangible returns.

The Ark Transparency ETF, which trades under the ticker CTRU, is the newest product from Ark Investment Management, led by CEO and chief investment officer Cathie Wood.

The fund reflects an emphasis on transparency already in place at Ark, Wood told CNBC's "Squawk Box" on Thursday.

"Ark Invest has gone viral as a brand because we're willing to share and engage with our clients," Wood said. "The return from transparency has been huge for us."

However, the transparency ETF is different from Ark's investment lineup as it relies on a passive index.

That index — called the Transparency Index — aims to track the 100 most transparent companies in the world. It was developed by Transparency Invest, a company founded by Paul Pagnato, a financial advisor who also serves as co-chairman of Cresset, a wealth management firm with around $22 billion in assets.

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The index's major distinction is its methodology, Pagnato said. Out of roughly 58,000 publicly traded companies, 152 meet the company's criteria for transparency. From there, the list is whittled down to 100. Just .3% of all of the companies in the world would be considered transparent based on its standards.

The index excludes nine industries deemed harmful for people and the planet, including alcohol, banking, chemical, confectionary, fossil fuel transportation, gambling, metals and minerals, oil and natural gas and tobacco.

The fund's holdings include names like Nvidia, HP, Tesla, Apple and Nike.

"The impact that is made from these companies is enormous, so there is a huge impact ESG position with the index," Pagnato said.

The new ETF comes as more passive funds with an environmental, social and governance or socially responsible investing focuses are popping up.

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"There's tons of options on the market, and there are more showing up every day," said Ben Johnson, director of global ETF research at Morningstar.

While the funds are generally accessible through online brokerage accounts, the challenge for investors is to know whether their performance will hold up, Johnson said.

Ark's new ETF is the first of its kind to rely on transparency as its exclusive investment criteria, he said.

"In theory, it seems like greater transparency might lead to better returns," Johnson said. "But as far as I'm aware, there's not really ever been any research to necessarily support that."

Transparency Invest has quantified the positive impact on the economy and people for each industry, Pagnato said. The performance of the index, as measured by the firm, have exceeded his expectations, he said.

"This is an opportunity where an individual now can invest to do good, make an impact, make a difference, but also do great performance wise," Pagnato said.