Over the past 20 years, the popularity of exchange-traded funds (ETFs) has exploded. There are now more than 200 ASX ETFs available to invest in on the Aussie bourse.

These include a broad range of Australian and international index funds as well as those seeking to track a particular sector, commodity or theme.

One of the best things about ASX ETFs is their ability to add instant diversification to an investment portfolio. Even by owning a mere one or two such funds, an investor has the potential to gain investment exposure to a variety of sectors, company sizes and international markets.

But with so many now available, choosing where to invest can be challenging. So, we asked our Foolish writers which ASX ETFs they think offer top buying right now. Here is what the team came up with:

7 best ASX ETFs for February 2023 (smallest to largest)

VanEck Global Clean Energy ETF (ASX: CLNE), $126.62 million

Betashares Global Quality Leaders ETF (ASX: QLTY), $353.86 million

VanEck Morningstar Wide Moat ETF (ASX: MOAT), $494.11 million

Betashares Global Cybersecurity ETF (ASX: HACK), $640.44 million

Betashares Nasdaq 100 ETF (ASX: NDQ), $2.54 billion

BetaShares Australia 200 ETF (ASX: A200), $2.74 billion

VanEck MSCI International Quality ETF (ASX: QUAL), $3.07 billion

(Market capitalisations as at market close on 10 February 2023)

Why our Foolish writers love these ASX exchange-traded funds

VanEck Global Clean Energy ETF

What it does: The VanEck Global Clean Energy ETF aims to invest in the 30 largest and most liquid global companies working in clean energy production, as well as associated technology and equipment.

By Brooke Cooper: Part of being a long-term investor is looking to the horizon in an effort to envisage what the world might look like in 10, 20, or 50 years' time. And one megatrend I think will be here to stay is the energy transition.

I expect demand for renewable energy sources – and investment in the space – will continue increasing as the world moves to decarbonise.

But how might one make the most of such an opportunity? There's an ASX ETF for this!

I think the VanEck Global Clean Energy ETF could be an easy way to get exposure to the decarbonisation megatrend.

Motley Fool contributor Brooke Cooper does not own units of the VanEck Global Clean Energy ETF.

Betashares Global Quality Leaders ETF

What it does: This ETF invests in a portfolio of 150 global companies that rank highly on quality metrics. Those four metrics include return on equity (ROE), debt-to-capital, cash flow generation ability and earnings stability.

By Tristan Harrison: Global shares suffered in 2022 as higher interest rates enabled investors to generate semi-decent returns from traditionally safer asset classes like cash and bonds.

Since the end of 2021, the Betashares Global Quality Leaders ETF has dropped by close to 20%. I don't believe the businesses this ASX ETF holds have seen a 20% reduction in their quality. But, they are now a fifth cheaper than before.

Also, in a potential downturn, I think the high-quality shares within this ETF are more likely than the average business to perform well.

For an annual management fee of just 0.35%, I like the diversification and quality overlay this ETF has to offer.

Motley Fool contributor Tristan Harrison does not own units of the Betashares Global Quality Leaders ETF.

VanEck Morningstar Wide Moat ETF

What it does: This ETF invests in a portfolio of US shares identified as having an intrinsic competitive advantage.

By Sebastian Bowen: This actively-managed ETF is one of my oldest and most valued investments. It invests in a basket of US shares that have been identified as possessing a wide moat, or distinct competitive advantage.

This is a concept popularised by the legendary Warren Buffett and refers to characteristics, such as a strong brand, that help a company ward off competition.

The approach has worked well for this ETF, with the Wide Moat ETF averaging a 14.54% per annum return since 2015.

As such, this is an investment I would happily recommend this February.

Motley Fool contributor Sebastian Bowen owns units of the VanEck Morningstar Wide Moat ETF.

Betashares Global Cybersecurity ETF

What it does: This ASX ETF offers investors exposure to 36 large-cap global cybersecurity stocks, predominantly listed in the United States. Its top holdings are Broadcom, Cisco Systems, Fortinet, Infosys, and Palo Alto Networks.

By Bernd Struben: Among the lessons learned in 2022 is that cybercriminals are here to stay. This was driven home by the massive data breaches experienced by Optus and Medibank. And instances of hacking were far from limited to just those two big players.

Hoping to keep their data secure, 80% of larger Australian companies intend to increase their cybersecurity spending in 2023, according to research by Netskope. That's after 63% of large companies reported ramping up spending in 2022.

With hackers targeting individuals and corporations across the world, global cybersecurity spending will most likely continue to grow in the foreseeable future. And I believe that should help support the Betashares Global Cybersecurity ETF price and its distribution payouts.

At the current price, this ASX ETF pays a trailing annual distribution yield of 8.3%, unfranked.

Motley Fool contributor Bernd Struben does not own units of the Betashares Global Cybersecurity ETF.

Betashares Nasdaq 100 ETF

What it does: This ETF invests in 100 of the largest non-financial businesses on the US NASDAQ exchange. Examples include Microsoft, Apple, Alphabet, Amazon, Tesla, Adobe, Intel, and Meta Platforms.

By Bronwyn Allen: We live in a high-tech age, and that's never going to change. I believe current short-term economic headwinds like rising inflation and interest rates are providing a great buy-the-dip opportunity on tech stocks.

I like the Betashares Nasdaq 100 ETF far more than some other tech-focused ETFs, like the BetaShares S&P/ASX Australian Technology ETF (ASX: ATEC). This is simply because NDQ holds a bunch of world-leading brands, whereas Australia's tech sector is junior by comparison.

Personally, if I'm going to invest in tech, I prefer to put my money into an ETF with Microsoft-sized businesses that are earning great, reliable profits, as opposed to tech start-ups — even if they are promising.

The NDQ ETF share price lost 31% of its value over the 12 months of 2022, but it's already up by around 11% in 2023!

Motley Fool contributor Bronwyn Allen does not own units of the Betashares Nasdaq 100 ETF.

BetaShares Australia 200 ETF

What it does: Providing cheap access to the top 200 Australian companies, this Betashares ETF is a no-frills way of earning the average return of the Australian share market. Closely emulating the S&P/ASX 200 Index (ASX: XJO), the A200 ETF predominantly comprises the big banks and miners.

By Mitchell Lawler: Trends come and go – sometimes they fail to materialise altogether. While I can see the value in sector-based or thematic ETFs, I much prefer to invest in companies, not themes.

Instead, where I see ETFs being highly valuable is for low-cost, passive index investing. It might be considered 'boring', but we know that the ASX 200 has always moved to higher highs over time, whilst also producing a delicious dividend yield.

Even the great Warren Buffett is a major proponent of low-cost index investing.

Notably, the Betashares Australia 200 ETF is the cheapest Australian shares ETF on offer – even beating those offered by Vanguard – with a management fee of 0.07%.

Motley Fool contributor Mitchell Lawler does not own units of the Betashares Australia 200 ETF.

VanEck MSCI International Quality ETF

What it does: This ASX ETF gives investors exposure to a diversified portfolio of approximately 300 quality, international companies listed on exchanges in developed markets around the world (excluding Australia).

By James Mickleboro: I think one of the best ways to grow your wealth is by investing in quality shares over a long period. This ETF provides investors with an easy way to do exactly that by pulling together approximately 300 of the world's highest-quality companies.

To be included in the fund, a company needs to have low leverage, high earnings growth rates, and high returns on equity (ROE).

A few examples of companies that tick these boxes and are included in this ASX ETF are Apple, ASML, Microsoft, Nike, Nvidia, and Visa.

The VanEck MSCI International Quality ETF has fallen by almost 7% over the past year so could offer a buying opportunity in February.

Motley Fool contributor James Mickleboro does not own units of the VanEck MSCI International Quality ETF.

The post Top ASX ETFs to buy in February 2023 appeared first on The Motley Fool Australia.

The ASX share market is full of interesting businesses. But, there are some compelling companies listed elsewhere around the world. We can get access to those with ASX exchange-traded funds (ETFs).

Some ETFs like the Vanguard Australian Shares Index ETF (ASX: VAS) track an index with businesses that are spread across a variety of sectors, such as the S&P/ASX 300 Index (ASX: XKO).

But, there are a growing number of ETFs that provide investors with access to a specific industry or theme.

A report by Sharesies has identified which ETFs investors have been buying. While the Vanguard Australian Shares Index ETF was the most popular, I'm going to outline the next two most popular ETFs that were bought in November 2022 on the Sharesies platform.

VanEck Global Clean Energy ETF (ASX: CLNE)

The purpose of the ETF is to give investors exposure to 30 of the largest companies involved in "clean energy production and associated technology and equipment globally", according to VanEck. These businesses are from both 'developed' and 'developing' markets.

There are four main areas that this ASX ETF is invested in – independent power producers and energy traders (33% of the portfolio), electrical equipment (29.3%), semiconductors and semiconductor equipment (24.8%), and electric utilities (12.9%).

In terms of geographic weighting, the US is the biggest allocation with 41%, but many countries have a weighting of more than 2.5%: Spain (10%), China (9.2%), Israel (7.5%), New Zealand (6.6%), Denmark (5.3%), Canada (4.6%), Japan (4.2%), Brazil (2.9%), and Austria (2.6%).

At the end of November 2022, these were the ten biggest positions in the portfolio: Solaredge Technologies, Vestas Wind Systems, Sunrun, First Solar, Enphase Energy, EDP Renovaveis, Bloom Energy, Xinyi Solar, Chubu Electric Power, and Brookfield Renewable. Those positions make up around 48% of the total portfolio.

This ASX ETF comes with an annual management fee of around 0.65%.

BetaShares Climate Change Innovation ETF (ASX: ERTH)

This investment provides a more diversified exposure to the fight against climate change. It's invested in up to 100 global companies that make at least 50% of their revenue from "products and services that help to address climate change and other environmental problems through the reduction or avoidance of CO2 emissions".

Sectors covered within the ETF include clean energy providers, along with companies tackling "green transport, waste management, sustainable product development, and improved energy efficiency and storage".

Looking at the allocations, green energy gets the biggest allocation with 23.8% of the portfolio, followed by 'enabling solutions' (21.9%), green transportation (21.3%), sustainable products (21.1%), and water and waste improvements (11.9%).

The portfolio is a bit more US-focused than the first one I outlined, with a weighting of 53.9% to the United States. Other weightings of more than 2% include China (8.6%), South Korea (6.2%), Denmark (5.1%), France (4.4%), Japan (3.5%), Spain (2.5%), Sweden (2.3%), and Germany (2.1%).

The top holdings of this ASX ETF look very different from the VanEck one. Here are the biggest 10 positions: Trane Technologies, Enphase Energy, Eaton, Vestas Wind Systems, American Water Works, Ecolab, Samsung, Cie De Saint-Gobain, East Japan Railway, and BYD.

This ETF comes with an annual management fee of 0.65%.

The post 2 ASX ETFs that investors are using to bet on the future appeared first on The Motley Fool Australia.

Inflation and higher interest rates have punished the valuations of plenty of businesses that are expected to grow their operations over the coming years.

After all of the investor panic that we saw earlier in the year, there appear to be signs that investors are now returning to the market.

Is confidence returning?

According to the Sharesies Investing Insights report for October 2022, there was "steady buying by the majority of investors, with some choosing to buy and sell the market moves."

For me, this was one of the most interesting takeaways from the report:

Twice as much buying as selling on the Sharesies platform this month. Buy orders outstripping sell orders is a consistent pattern on the platform over the last six months, regardless of market volatility.

Which ASX shares are people buying?

ASX mining shares were some of the most popular investments last month according to the report.

In terms of the total amount invested, in dollar terms, these were the top ten: Sayona Mining Ltd (ASX: SYA), New Hope Corporation Limited (ASX: NHC), Fortescue Metals Group Limited (ASX: FMG), Core Lithium Ltd (ASX: CXO), Pilbara Minerals Ltd (ASX: PLS), Qx Resources Ltd (ASX: QXR), Telstra Corporation Ltd (ASX: TLS), BHP Group Ltd (ASX: BHP), Qantas Airways Limited (ASX: QAN) and Flight Centre Travel Group Ltd (ASX: FLT).

However, the list was a little different when you look at which were the top 10 most bought ASX shares by the number of investors. Here is the list: BHP, Fortescue, Commonwealth Bank of Australia (ASX: CBA), Pilbara Minerals, Wesfarmers Ltd (ASX: WES), Core Lithium, Woolworths Group Ltd (ASX: WOW), Qantas, Coles Group Ltd (ASX: COL) and Macquarie Group Ltd (ASX: MQG).

Perhaps unsurprisingly, investors were drawn to a number of ASX's blue chips.

Strong levels of ETF investing

According to the report, exchange-traded funds (ETFs) saw four times as much buying in dollar volume traded terms as selling in October.

Sharesies suggested that this was "likely driven by investors employing a dollar-cost averaging investment strategy".

These were some of the ETFs getting investor attention last month:

Vanguard Australian Shares Index ETF (ASX: VAS)

VanEck Global Clean Energy ETF (ASX: CLNE)

BetaShares Climate Change Innovation ETF (ASX: ERTH)

iShares Core MSCI World Ex Aus ESG Leaders ETF (ASX: IWLD)

iShares Core MSCI Australia ESG Leaders ETF (ASX: IESG)

Foolish takeaway

While investors may be coming back to the market, it doesn't mean that the market has reached a bottom yet. Only time will tell whether June was the month we saw the lowest prices for many ASX shares.

The post Are ASX share investors getting their mojo back? appeared first on The Motley Fool Australia.

One of the head-scratchers for investors in FY22 was seeing ASX renewable shares fall in value while households struggled with rising electricity prices. And all during a significant period for the climate change movement as governments around the world commit billions to renewables projects.

That doesn't make sense, right?

Why did ASX renewable shares fall last year?

Wentworth Williamson analyst Martin Marais sums up the problem. He says the renewables industry is currently "incapable of rapidly ramping up production after years of underinvestment".

As a result, "the supply/demand imbalance may take many months, if not years, to fix".

Although climate change is firmly on the agenda in most western nations today, that doesn't mean the renewables sector is in a position to respond to it immediately.

Some of the businesses we refer to as ASX renewable shares are brand new companies, while others are existing energy providers. Both are having to spend oodles of cash to build their renewable energy offerings to meet this sudden demand.

A ramp-up in costs isn't so good when there isn't yet corresponding revenue growth to offset it. And that means profit warnings, according to RC Global chief investment officer Roy Chen.

In a recent article in the Australian Financial Review (AFR), Chen said:

There are some of these clean energy companies that have issued profit warning after profit warning, and warned profit margins could even turn negative because costs are becoming so much.

These are some of the factors making market watchers a bit wary of ASX renewable shares for now.

A snapshot of falling prices in FY22

For this article, we're defining ASX renewable shares as companies producing clean power. Let's take a look at how some of the big players did in FY22.

• The Contact Energy Limited (ASX: CEN) share price dropped 14.5% in FY22
• The Meridian Energy Ltd (ASX: MEZ) share price fell 15% in FY22
• The Mercury NZ Ltd (ASX: MCY) share price tumbled 32% in FY22
• The Infratil Ltd (ASX: IFT) share price lost 6%. (Infratil isn't a power producer but it's a major investor in green energy assets with a market cap of $5 billion. So, it's worth including here)
• Genesis Energy Ltd (ASX: GNE) shares fell 24.5% in value in FY22.

There's no index for ASX renewable shares but the VanEck Global Clean Energy ETF (ASX: CLNE) provides a good proxy. Units in the exchange-traded fund lost 22% in value during FY22.

The post Why did ASX renewable shares fall while electricity prices increased in FY22? appeared first on The Motley Fool Australia.

ASX renewable energy shares incorporate a range of companies involved in producing clean energy sources.

They span several sectors including resources, materials, and energy. Think lithium explorers, battery producers, electric vehicle manufacturers, clean energy providers… arguably, they're all in the renewables space. But for now, let's just focus on clean power producers.

Power has been a hot topic in the Australian economy of late. Electricity prices have skyrocketed and are contributing significantly to rising inflation, which is currently running at 5.1% per annum.

This problem highlights the urgent need for more renewable energy sources. Not only to lower power costs for consumers but also to support a lurching grid at risk of more frequent blackouts and outages.

So, why did several ASX renewable energy shares fall in June?

ASX renewable energy shares dip in June

Well, let's remember that ASX renewable shares are a relatively young and growing part of the market. And like any growth sector, it will have its ups and downs — and that's what we saw in June.

Mind you, June was a volatile month for ASX shares in general. The S&P/ASX 200 Index (ASX: XJO) lost 8.9% and the S&P/ASX All Ordinaries Index (ASX: XAO) lost 9.5% over the month.

First up, let's look at the broad picture.

Clean energy shares generally form part of the utilities segment of the ASX energy sector. The S&P/ASX 200 Energy Index (ASX: XEJ) fell 0.3% in June and is up 16.9% over the year to date.

There's no index for ASX renewable shares, however, we can look to the VanEck Global Clean Energy ETF (ASX: CLNE) for guidance. It's an exchange-traded fund trading on the ASX and it's chock-a-block full of global renewable energy companies. So it serves as a good proxy for ASX renewable energy shares.

The VanEck Global Clean Energy ETF share price dipped 2.5% in June. Year to date, it's down 9.6%.

Here's how some of the big players performed

Let's look at the performance of the bigger players among ASX renewable energy shares in June.

The Meridian Energy Ltd (ASX: MEZ) share price dropped 3% in June. Year to date, Meridian shares are down 6.5%.

Meridian is New Zealand's largest energy producer and uses 100% renewables. It owns five wind farms, scores of commercial solar arrays, and seven hydropower stations, including the country's largest.

The Mercury General Corporation (ASX: MCY) share price dropped 9.5% in June. Year to date, Mercury shares are down 16.5%.

Mercury is another New Zealand-based green energy provider that uses 100% renewables. The company owns nine hydro stations that supply 10% of the country's electricity annually. It owns five geothermal plants and four wind farms. It's currently building what will be New Zealand's largest wind farm.

The Infratil Ltd (ASX: IFT) share price rose by 0.6% in June. Year to date, Infratil shares are down 7.7%.

Infratil is a different kind of ASX renewable energy share. It's an infrastructure investment company that owns several green energy assets in New Zealand.

Genesis Energy Ltd (ASX: GNE) shares lost 0.15% in value in June. Year to date, Genesis shares are down 6.9%.

Genesis is a leading New Zealand electricity and gas retailer that owns a bunch of thermal and renewable generation assets.

Some ASX renewable shares had a shocker

The Genex Power Ltd (ASX: GNX) share price dropped 14% in June. Year to date, Genex shares are down 32.5%.

Genex is an Australian power generation company specialising in the generation and storage of renewable energy.

Ongoing challenges for ASX renewable energy shares

As my Fool colleague Bernd Struben reported in March, the renewables sector has experienced years of underinvestment, so it's difficult to ramp up production rapidly to meet today's soaring demand.

Plus, many clean energy companies are spending a lot — as you do when you're in growth mode — which is narrowing profit margins.

And it appears ASX investors don't like that, especially when a booming commodities cycle is delivering massive profits to the big resources companies digging fossil fuels out of the ground.

The post Here's why ASX renewable shares slipped in June appeared first on The Motley Fool Australia.

Megatrends are major global changes than can impact the economy, ASX companies and the world.

Examples over time include electricity and the internet. But right now, there are new megatrends at play.

Let's take a look at what they are and which ASX shares could be impacted?

What are the megatrends in 2022

Five megatrends identified in a recent Livewire article include battery minerals, decarbonisation, automation, digital currencies and the ageing population.

Speaking to the publication, Felicity Thomas from Shaw and Partners recommended ETFS Battery Technology and Lithium ETF (ASX: ACDC) as a way to get exposure in the battery minerals space. She cited the Biden administration's investment in electric vehicles (EV).

Thomas said:

For me, this is a buy. I really like future-facing commodities and ACDC is a way to get diversified exposure to that kind of theme. The US has also created a 50% electrification target, so I think there's going to be a push there.

However, Pivot Wealth founder Ben Nash had a different take on this fund, suggesting investors sell it. He said, "I think if you look at the performance of this ETF relative to the market and relative to commodity prices over the period, it probably doesn't seem to be lining up for me."

The ETFS Battery Tech and Lithium ETF has fallen nearly 15% year to date.

Looking at decarbonisation, Thomas recommends VanEck Global Clean Energy ETF (ASX: CLNE). She again cited the United States investment in green technology, adding:

For me, CLNE is a buy. It's the only ETF that is actually a pure-play green energy ETF. So I think it's quite unique and I believe that the US last year spent a lot of money on climate change, so I think it's going to come into its own.

However, Nash again had a different take, rating this ETF as a sell:

I think it is extremely niche, and while I do believe in the theme and that the space will grow over time, for me, the lack of diversification just suggests a bit more volatility for investors.

VanEck Global Clean Energy ETF has dropped nearly 13% year to date.

The post What is a megatrend and which ones are impacting ASX shares right now? appeared first on The Motley Fool Australia.

Key Points

• 2021 was a top year for ETFs, but a new report finds 2022 could be even better
• With index funds at saturation, we can expect some more exotic ETF offerings
• Investors are using ETFs in new ways, such as hedging

Last year was a great one for ASX exchange-traded funds (ETFs). As we've covered extensively here on the Fool, 2021 not only saw total funds under management in the ETF sector hit record highs. But we also saw the successful listing of a number of new ETF products. One, the BetaShares Crypto Innovators ETF (ASX: CRYP), actually broke the trading volume record for a newly-listed fund.

So with all that success under the belt, what does 2022 hold in store for ASX ETFs?

Well, a report in The Australian this week reveals that investment bank Citi has released a 'deep dive' report into the global ETF sector and its outlook for 2022.

The report finds that the global index fund market is reaching saturation point. It found the "most widely-followed indices have been replicated by ETFs". As such, the report finds that ETF providers are increasingly motivated to "expand towards more novel product approaches".

We have seen this with our own eyes on the ASX. Although 2021 welcomed many new ETFs to the market, almost none of them were index funds. Instead, the new funds extended coverage of thematic trends or select industry groups. Other 2021 ETF debuts included VanEck Vectors Global Clean Energy ETF (ASX: CLNE) and BetaShares Cloud Computing ETF (ASX: CLDD).

ETF growth on the ASX could just be getting started

The report finds that this trend is likely to continue into 2022 as investors increasingly look for diversification outside the traditional index fund structure.

Further, Citi is predicting that the high inflows we saw last year will continue. This will be driven by "the very strong returns of recent years". It also sees interest in ESG and ethical investing continuing to dominate investors' interest.

This trend, the bank believes, may continue to benefit from a tailwind of improving global standards in ethical/ESG analysis. This, the report finds, has been beset in the past by lax standards and 'greenwashing'.

Interestingly, Citi also predicts a new way in which investors (especially those on the professional side) will use ETFs. It points to a trend in the US where institutional investors employ ETFs for 'tactical' moves such as hedging. The bank reckons this will expand to all markets, including Australia.

So it looks as though the rise of ETFs on the ASX is certainly here to stay if this report is to be believed. So get ready to hear more about ASX ETFs as we move through 2022. 

The post Shopping for some new ASX ETFs in 2022? Here's what you need to know appeared first on The Motley Fool Australia.

Last week, we discussed how the ethical investing trend is taking off in the ASX exchange-traded fund (ETF) sector. ESG (environmental, social and corporate governance) investing has grown in scope and scale as more and more investors want to put their money where their values lie. Of course, you can sniff out individual companies that might align with your values. But many investors are using ETFs to do this legwork for them, as well as taking advantage of the diversification and passivity that an ETF can offer.

Breaking down an ESG ETF

When it comes to ethical ESG ETFs, there are normally two classes that a fund will fall into. There are funds that follow a broad market index, such as the S&P/ASX 200 Index (ASX: XJO), but then 'filter' out any unsavoury companies from the index. And then there are those that invest in a particular ESG-aligned industry, such as renewable energy. There is a big difference between these two approaches.

Let's first look at the index funds. The BetaShares Australian Sustainability Leaders ETF (ASX: FAIR) is one such fund. This ETF tracks an index that screens ASX companies based on ESG criteria such as fossil fuel production, gambling, tobacco, alcohol, environmental destruction and animal cruelty. It holds 80 ASX shares, which includes some big names like Telstra Corporation Ltd (ASX: TLS), CSL Limited (ASX: CSL) and Xero Limited (ASX: XRO). As such, you are still getting some of the diversification benefits a simple ASX 200 index fund might provide, but without the companies that have been identified as not possessing ESG characteristics.

There are other ASX ESG ETFs that follow a similar methodology. The Vanguard Ethically Conscious Australian Shares ETF (ASX: VETH) is one. The VanEck Vectors MSCI Australian Sustainable Equity ETF (ASX: GRNV) is another. There are even funds available that take this approach and apply it to overseas shares instead of ASX companies. Such funds include the VanEck Vectors MSCI International Sustainable Equity ETF (ASX: ESGI) and the BetaShares Global Sustainability Leaders ETF (ASX: ETHI).

What about sector-specific ETFs?

That's only one side of the ASX ethical ESG ETF coin though. There are also a number of funds out there that chase specific ESG sectors. Take the ETFS Battery Tech & Lithium ETF (ASX: ACDC). This fund aims to give exposure to "the energy storage and production megatrend, including companies involved in the supply chain and production for battery technology and lithium mining."

Whilst this fund does not have a specific ESG mandate, it is still focused on an industry with 'green' credentials in aiming to reduce greenhouse gas pollution. However, a fund like this arguably provides less diversification than one of the funds named above. That's because all of the holdings in this ETF are companies that operate in a very specific sector.

The same can be said of the VanEck Vectors Global Clean Energy ETF (ASX: CLNE) or the BetaShares Climate Change Innovation ETF (ASX: ERTH).

Whilst there is nothing wrong with this approach, it's worth pointing out that there is a lot more concentration on one particular section of the ESG market. This carries its own set of risks compared to a more diversified fund.

Foolish takeaway

Ethical ESG investing looks as though it's here to stay as an investing trend. But if you are seeking out ESG funds to invest in, make sure you know what kind of exposure you are looking for. Not all ethical ETFs are equal — some of these funds might be offering a portfolio that's too concentrated for your goals, or risk profile. Just because something has 'ESG' or 'ethical' doesn't mean it's automatically a good investment.

The post An ASX investor's guide to ESG-focused ETFs appeared first on The Motley Fool Australia.