Products March 9, 2009

S&P Index Targets Companies with Low Carbon Footprints

Standard&Poor's announced the launch of the first in a series of global low carbon indexes to meet investor demands for environmentally focused indexes.
Reported by

The S&P U.S. Carbon Efficient Index will measure the performance of large-cap U.S. companies with relatively low carbon emissions, while seeking to closely track the return of the S&P 500, according to a release. The new Index—part of the Standard & Poor’s global thematic index series—provides a benchmark to the market, as represented by the S&P 500, while allowing investors to create financial products that seek to gain exposure from a more environmentally efficient perspective, S&P said.

The Index is composed of constituents of the S&P 500 that have a relatively low Carbon Footprint, as calculated by Trucost Plc. The environmental data organization quantifies the environmental impact of more than 4,500 companies across different sectors and geographies. Carbon Footprint is calculated as the company’s annual greenhouse gas emissions assessment (expressed as tons of carbon dioxide equivalent) divided by annual revenue.

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The index is rebalanced quarterly, at which point the stocks in the S&P 500 are ranked by their Carbon Footprint. The 100 equities with the highest Carbon Footprints, whose aggregate exclusion does not reduce any individual GICS sector weight of the S&P 500 by more than 50%, are removed.

Through 2008, the average annual Carbon Footprint of the S&P U.S. Carbon Efficient Index was 48% lower than that of the S&P 500, according to the release.

The Markets March 9, 2009

Vanguard Closes Door to ‘Safest’ Investments

The Vanguard Group closed its Treasury money market funds to new investments.
Reported by

In a letter to participants in 401(k) plans it administers, Vanguard blamed the low yields offered by Treasuries for the closure, stating that its Treasury Money Market Fund would accept no new contributions beginning February 27, according to Forbes. Past contributions are allowed to remain in the Treasury fund; however, investors who do not choose a new investment for their contributions will have new money defaulted to the Vanguard Prime Money Market fund.

The financial crisis has dropped the yield on the T-bills the fund owns to close to zero. According to Forbes, in February, the fund returned only 0.02% net of expenses—far below the 0.28% expense ratio it charges. Forbes also said Fidelity Investments and Charles Schwab Corp. have made similar moves in recent weeks.

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The $40 million pension fund for the Orange County Sheriff’s Office in Orlando, Florida, invested in the Vanguard Treasury Money Market fund because it was considered risk-free, the news report said. The fund is not happy about having its assets redirected to a new investment.

In the letter sent to 401(k) participants, Vanguard said: “Vanguard Prime Money Market Fund has an identical investment objective to Vanguard Treasury Money Market Fund: It seeks to provide current income while maintaining liquidity and a stable share price of $1. However, Vanguard Prime Money Market Fund has a higher seven-day yield.” However, Edward Siedle, president of Benchmark Financial Services and a consultant to the Orange County Sheriff’s plan, argues that an identical investment objective does not mean the funds are equally safe.

The Vanguard Prime Money Market fund has 37% of its assets in certificates of deposit and 12% in commercial paper, and about half of the fund is invested in U.S. government debt. Siedle said the portion of the fund that is not in government debt is subject to substantially greater risk, according to the news report.

A spokesman for Vanguard said the letter to investors made clear that the funds invest in different securities.

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