Risk-Minded Approach to Sustainability

Key Takeaways

»    The Fund has adopted a fully transparent structure. By disclosing its holdings daily, investors have enhanced visibility along with the ability to make more informed decisions.
»    U.S. equities remain attractive despite policy uncertainty.
»    Portfolio additions include airline stocks Delta Air Lines Inc, United Airlines Holdings Inc, and Southwest Airlines Co.
»    The ETF excludes weapons, tobacco, and thermal coal companies but considers essential mining firms aligned with a lower-carbon transition.
»    Investors may be best served by investing in a diversified collection of companies with strong financial fundamentals and a reputation for managing off-balance sheet risks.

Why did the Fund transition from a semi-transparent ETF to a fully transparent structure? 

We believe this transition reflects a broader industry trend toward greater transparency while aligning with our investors’ values. The transition reflects this commitment, while our active, sustainability-driven approach remains unchanged. 

By adopting a fully transparent structure, the ETF now discloses its holdings daily, providing enhanced visibility and the ability to make more informed investment decisions. As ETF assets grow, the pricing between the spread and the ask can narrow, and it is our belief that a tighter spread protects performance.

Effective May 12, 2025, the name of the Hennessy Stance ESG ETF was changed to the Hennessy Sustainable ETF.

Would you please provide your perspective on the equity market against the backdrop of changing domestic policies and tariff-related geopolitical tensions? 

We are of the opinion that the U.S. equity market remains an attractive investment in a diversified portfolio. However, while a lack of clear policy direction from the current administration appears to have weakened consumer confidence in business conditions, it has yet to negatively impact equity markets. 

In our view, the U.S. market seems to be the best place in the world to get exposure to technology and artificial intelligence (AI), and U.S. businesses are quickly becoming more efficient and adopting AI and automation relative to global peers. One way the Hennessy Sustainable ETF manages ongoing positive and negative market forces is by providing exposure to the overall U.S. market while seeking to minimize risk of overexposure at a sector level. We are pleased the portfolio has a beta of 0.93 over the past three years relative to the S&P 500 Index as of June 30, 2025, suggesting lower overall volatility than the overall U.S. market.

Would you please discuss a recently added stock or two that meets your investment criteria? 

When we rebalanced the portfolio at the end of the second quarter, we added several airlines including Delta Air Lines, United Airlines, and Southwest Airlines for various reasons tied to our disciplined, rules-based process. In the case of Delta, the leading driver of inclusion was momentum, as the company has shown consistent strength relative to the broader market in a volatile period. For Southwest, its year-over-year revenue growth met our criteria, and with United, we noted its revenue growth forecast, which aligned with our quantitative growth screens.

All three names score well on sustainability metrics. We also believe these companies are most likely to potentially outperform both in absolute returns and in risk-adjusted returns over the next quarter.

While the ETF generally excludes companies engaged exclusively or primarily in weapons, tobacco, or thermal coal, when would there be a case to own such companies? 

Companies that have engaged exclusively or primarily in weapons, tobacco, or thermal coal, are generally excluded from consideration. However, the reality is that minerals and mining are essential to a transition to a lower carbon economy, which we believe is a key to aligning our values with ETF shareholders. These companies are integral to infrastructure upgrades, electric vehicles (EVs), and even medical devices, so we do not avoid owning the companies we believe are best managed and fit our investment process. 

Looking ahead, what particular themes or sectors could provide opportunities for sustainable investors?

 For the Hennessy Sustainable ETF, we continue to maintain our rules-based methodology to find large-capitalization companies that meet our sustainability-related key performance indicators. The Fund was created for investors who want to align their capital with their values while still having the potential opportunity to outperform the overall S&P 500 Index with less risk.

Over the next several months, we believe investors are best served by investing in a diversified collection of companies with strong financial fundamentals and a reputation for managing off-balance sheet risks.