State Street SPDR S&P World ex Aus Carbon Aware ETF

A compelling low-cost global equity ETF with a systematic carbon-aware ESG overlay

SPDR S&P World ex Australia Carbon Aware ETF (ASX: WXOZ) and its fully hedged counterpart (ASX: WXHG) stand out as attractive, low-cost options for investors seeking global equity exposure with a clear carbon-aware environmental, social, and governance focus.

State Street Investment Management’s Systematic Equity team runs this strategy, with a well-established pedigree in tracking indexes. The strategy tracks the S&P Developed ex-Australia LargeMidCap Carbon Aware Index. This is well-designed and minimizes the portfolio’s carbon footprint within a certain level of acceptable risk and diversification. Starting with the constituents of the S&P Global LargeMidCap Index, the methodology excludes 25% of the worst-performing stocks from each industry based on S&P’s proprietary ESG scoring. Additional screens are applied to filter out companies either involved in businesses not aligned with responsible investing practices or companies susceptible to significant ESG-related risks. The resultant portfolio has a lower carbon intensity relative to the parent index without losing its core features; it has an active share of around 30% and a tracking error ranging between 1.0% and 2%. The portfolio is diversified, with around 690 portfolio constituents as of Jan. 31, 2026, and the sector allocations are largely in line with the parent index.

As such, the fund should mirror the parent index’s performance within low margins of tracking difference. The sector allocation has significant exposure to technology and healthcare, sectors that are underrepresented in the Australian market. Its 0.07% fee is one of the lowest, making this attractive to investors and giving it a meaningful cost/value advantage over its active peers. The strategy is available in two versions: unhedged and currency-hedged. For the unhedged strategy, the fluctuations in major global currencies like the US dollar, Japanese yen, and British pound may boost or suppress returns.

In summary, both stand out as compelling investment options, boasting a strong combination of a diversified portfolio with an ESG focus and State Street’s well-regarded indexation pedigree.

Perpetual ESG Australian Share Active ETF

Despite its recent deviation from the index, this capability offers attractive long-term qualities

Perpetual ESG Australian Share (ASX: GIVE) remains a compelling offering, thanks to its knowledgeable portfolio manager and sound approach.

This strategy moved to the equity value mid/small Morningstar Category in 2023 to reflect its bias to mid- and small-cap stocks. This was driven by the strategy’s environmental, social, and governance screening process, combined with Perpetual’s quality and value philosophy, which significantly reduces the investable universe among larger companies. Thus, it is more appropriate to assess this strategy within the mid/small-value category and against its category benchmark of the S&P/ASX Small Ordinaries Accumulation Index. In this respect, the bar was lowered, as the benchmark’s composition has been an easier hurdle for active managers in Australia and a contributing factor to the strategy’s favorable Morningstar Medalist Rating.

That is not to take away from our positive opinion of portfolio manager Nathan Hughes. Since becoming the sole manager of this strategy in April 2019, he has demonstrated solid stock selection and portfolio management skills, as reflected in his ability to leverage both Perpetual’s analyst team and his own research to identify strong-performing stocks. His aptitude also compares favorably with Perpetual’s veteran Australian equities portfolio managers, including Head of Equities Vince Pezzullo and Deputy Head of Equities Anthony Aboud, both of whom we view positively for their investment acumen.

The investment process is based on Perpetual’s time-tested quality and value philosophy, with the addition of straightforward ESG exclusion criteria. Companies are excluded from the investment universe if 5% or more of its revenue comes from activities such as alcohol, gambling, and fossil fuels. Despite this leading to a sizable portion of domestic large-cap names being screened out of its investable universe and a structural underweighting in sectors such as resources, it is effectively counterbalanced by the strategy’s flexibility to invest across the market-cap spectrum and international stocks. Importantly, stock selection has been solid across most market segments over Hughes’ tenure, with an eclectic mix of names driving relative performance through time, despite some recent missteps. The dominant index weight of commodity stocks and the strategy’s inherent underweight can create a headwind to relative returns during periods of strong sector performance, with the sector’s recent sustained strength weighing on short- and medium-term trailing performance. That said, this strategy is expected to benefit when the commodity cycle turns, as it inevitably does, and we believe the process retains several levers that support long-term outperformance.

Overall, this strategy remains an appealing offering, particularly when compared against the small-cap index.

Get Morningstar insights in your inbox