How Does This Eco-Friendly ETF Match Up Against This International Fund?

This comparison examines how the climate-conscious approach of the SPDR MSCI ACWI Climate Paris Aligned ETF (NASDAQ:NZAC) compares with the emerging market focus of the iShares MSCI Emerging Markets ETF (NYSEMKT:EEM). Investors weighing cost, risk, and sector exposure may find meaningful differences between these two broad equity ETFs.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

NZAC has a considerably lower expense ratio, but EEM’s higher dividend yield and return over the last 12 months may be more appealing for income-focused investors.

Performance & risk comparison

What's inside

EEM focuses exclusively on emerging markets, with 1,241 different stocks in its total holdings. Throughout its 22-year existence, the fund has historically tilted heavily towards the tech sector. Its largest positions are Taiwan Semiconductor Manufacturing (2330.TW), ASML Holding N.V. (AMS:ASML), and Samsung (005930.KS).

NZAC targets companies that meet climate-aligned criteria, providing investors with exposure to efforts to reduce climate risks. It holds 729 stocks, with the technology sector leading the charge. Top positions include Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT). The fund has been in operation for over 11 years and incorporates an ESG screen as a key feature, which helps evaluate which companies align with relevant sustainability themes.

What this means for investors

One of the biggest differences between the two ETFs is international exposure. While both funds hold stocks from around the world, nine out of the ten top holdings of NZAC are U.S. companies.

With EEM, all of its top 10 holdings are non-U.S. stocks, which may produce more volatility in the ETF than those centered on U.S. assets, as foreign markets can move in ways that differ significantly from American markets. So U.S. investors may want to familiarize themselves with the foreign stocks and their relevant markets to better understand the price movement of EEM and those stocks.

And even though NZAC has a return over the last five years that is nine times greater than EEM’s, investors should be aware that NZAC can grow more slowly than broader funds, as the screening process can exclude some of the highest-performing stocks in the world, which contributes to the fund having a tight number of holdings.

For more guidance on ETF investing, check out the full guide at this link.

Adé Hennis has positions in Apple and Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.