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Healthier/cleaner living is all the rage these days and for avid followers of the exchange traded funds industry, it's not surprising that some funds are popping up that address the investable side of cleaner living.
The Amplify Cleaner Living ETF (NYSEARCA:DTOX) is one of the newest additions to this fund category. DTOX, which debuted in June and holds 78 stocks, follows the Tematica BITA Cleaner Living Index.
New ETFs have a way of drawing doubters, mostly because the funds are, well, new. However, DTOX's approach to the cleaner living theme is relevant as the Amplify ETF focuses on multiple investable segments, including cleaner buildings and infrastructure, energy, food and dining, health and beauty and transportation. Fortunately for advisors, part of the DTOX allure comes from a straightforward approach to a concept many clients find interesting but aren't well versed in.
“Cleaner Living has moved more and more into the mainstream in recent years as consumers become more conscious of the ingredients and materials used in the foods they eat and the products they surround themselves with on a daily basis. Cleaner Living seeks to eliminate, wherever possible, artificial chemicals, additives, and ingredients that are deemed to have potentially harmful effects, as well as avoid the materials or technologies that can damage the planet through pollution or depletion of natural resources,” according to index provider Tematica.
Drilling Down on DTOX
It'd be easy to construct a fund like DTOX and chock it full of stocks like Beyond Meat (NASDAQ:BYND) and Tesla (NASDAQ:TSLA) and solar stocks, assign large weights to those names and call it a day.
Fortunately, DTOX offers a more bespoke approach. That starts at the holdings where its components are equally weighted. That's a relevant point for investors because some thematic ETFs, regardless of industries or themes being addressed, are heavily allocated to a small number of stocks. That introduces the potential for single stock risk and it reduces one of the primary benefits of ETFs, which holdings-level diversification.
DTOX holdings range in weight from 0.78% to 1.97%. In other words, clients looking to avoid concentration risk and tap into a truly diverse lineup will be pleased to know Tesla and Lululemon (NASDAQ:LULU) account for roughly the same percentages of the DTOX roster.
In addition to holdings-level diversity, DTOX also offers clients the benefit of not being heavily dependent on large caps. In fact, the Amplify ETF allocates just 19.6% of its weight to stocks with market values in excess of $10 billion. Mid- and small-cap equities combine for 80.5% of the fund's weight, which is high relative to other thematic strategies.
Relatable Idea for Clients
With more clients demanding access to sustainable investing strategies and many looking for unique fare that goes beyond simple environmental stewardship, the audience for DTOX is potentially wide. However, the fund will most likely be captivating for tactical clients and younger investors.
That said, it's not a tough sell for clients prioritizing cleaner living and those that put that into practice when it comes to everyday shopping, meaning plenty of clients are already engaging in cleaner living and consumerism.
“Naturally positioned toiletries and other self-care staples are growing 14.4% year over year according to data from the SPINS Natural Enhanced and MultiOutlet channels (powered by IRI) for a 52-week period ending January 24,” according to Spin. “By comparison, the conventional group only grew 1.4%. Natural is certainly on the rise, and it’s even more apparent once you dig into the natural items that outperformed their conventional counterparts.”
Likewise, the markets for cleaner soap/body washes and hair care products are growing by 42.7% and 17.8%, respectively, far outpacing growth for traditional products in those categories. Those data points could be signs that DTOX itself has a long runway for growth ahead.
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