Australia ex Financials & Resources ETF

The Solactive Australia Ex Financials Materials And Energy Capped Index, tracked by OZXX, starts by including all companies listed on major Australian exchanges. It then removes those companies classified by FactSet as belonging to the Materials, Energy and Finance (which includes REITs) sectors. One hundred stocks are then selected and weighted based on market capitalisation. A cap of 10% is placed on each stock’s weight at index rebalance, preventing the biggest companies (like CSL) becoming too influential in driving the performance of the fund.

OZXX is intended as a core portfolio building block, in a manner similar to ETFs tracking the S&P/ASX 200.

Many Australians already own the banks, miners and energy companies – with trading data suggesting they are some of the most popular stocks with direct investors. For these Australians, buying ETFs that track the S&P/ASX 200 means that they double up – i.e. buy twice – on the same stocks. OZXX was designed to give Australians that already own the banks and miners an easy way to “buy the rest” of the Australian share market. The ultimate aim is to provide a portfolio completion tool that can complement investors’ existing holdings.

Additionally, OZXX can also be used as an alternative way to play the Australian share market. The financials and materials sectors together take up more than 50% of the weight of the S&P/ASX 200. Yet these sectors are mostly composed of the big banks and miners, which are mature businesses. A portfolio that removes these companies can be expected to tilt instead towards less mature and potentially higher growth stocks in other sectors.

The materials sector in Australia is mostly comprised of mining companies – especially the majors like BHP, Fortescue and Rio Tinto. The financials sector is dominated by the big five banks – CBA, NAB, Westpac, ANZ and Macquarie. While energy companies are mostly fossil fuel producers like Woodside and Santos.

As OZXX removes companies from the materials and energy sectors, it effectively excludes a large portion of major fossil fuel producers. Most fossil fuel producers are either classified as mining companies (such as Whitehaven Coal) or energy companies (such as Woodside and Santos). As such, OZXX draws significantly less revenue from fossil fuel production compared with the S&P/ASX 200. On this mathematics, it can be regarded as a lower carbon investment than the broad Australian share market.

However, the fund includes utilities companies such as AGL and Origin that are major consumers of fossil fuels. As such we do not talk about OZXX as being an ESG or green ETF.

Furthermore, the Solactive Australia Ex Financials Materials And Energy Capped Index – the index tracked by OZXX – does not include any explicit ESG filters in its methodology. As such, stocks are neither screened nor weighted based on ESG criteria.