The Darfur divestment campaign is steadily gaining traction, and exchange-traded funds are continually slicing the investment universe into ever smaller segments in an effort to set themselves apart. So it was only a matter of time before someone launched an ETF that seeks to tap into the American public's concern about the genocide under way in this region of Sudan. Claymore Securities, which has turned some very offbeat ideas into ETFs, has beaten everyone to the punch. The Claymore/KLD Sudan Free Large-Cap Core ( KSF) made its debut on the American Stock Exchange Monday with an initial offering price of $25. The fund, which has an expense ratio of 0.5%, closed down 30 cents to $24.70 on its first day of trading. The launch comes as some very large investors have been under pressure from activists to unload their holdings in two Chinese oil companies, PetroChina ( PTR) and China Petroleum and Chemical ( SNP), that do business in Sudan. For the past four years, Sudan has enacted a scorched earth campaign against the people living in its Darfur region. The conflict has claimed more than 400,000 lives, and sent 2.3 million people fleeing their homes. Another 1 million Darfuris remain in their villages under constant threat of death. China is the biggest foreign investor in Sudan's oil industry, and activists hope that divestment will encourage PetroChina and China Petroleum to stop doing business in the country.
Earlier this year, Fidelity Investments' ( symbol) Contrafund dumped 91% of its stake in PetroChina. The company claims the divestment campaign had nothing to do with the sale, however. Warren Buffett has also taken some heat over Berkshire Hathaway's ( BRK) stake in PetroChina, althogh he is standing firm for now. Socially responsible investing in general is becoming more mainstream. Over the past 10 years, assets in bond and equity funds that use some social or environmental criteria to screen issuers have surged 828% to $40.1 billion from $4.8 billion. By comparison, total assets in mutual funds of all kinds have risen 260% to $10.9 trillion. The Sudan Free Large-Cap Core ETF isn't the first socially responsible ETF. Two others, the iShares KLD 400 Social Index Fund ( DSI) and the iShares KLD Select Social Index Fund ( KLD), have been launched over the past two years. But neither screens out companies that do business in Sudan. There are also a number of socially responsible mutual funds sponsored by companies such as Calvert and Domini that avoid investing in companies providing direct or indirect benefits to the Sudanese government. The Sudan Free ETF doesn't just avoid PetroChina and China Petroleum, however. Its benchmark, the KLD Large-Cap Sudan Free SocialSM Index, screens out companies in the Russell 1000 involved in the alcohol, tobacco, gambling and firearms industry as well as companies that own property or other assets in Sudan, obtain goods or services in the African nation or purchase commercial paper issued by its government.
For example, KLD says PepsiCo ( PEP) sells beverage concentrates to an independent bottler in Sudan. So even though it doesn't have equity interest in the bottler, Pepsi is out of the index. Schlumberger ( SLB) is too. KLD says the company provides support services to oil companies operating in Sudan. The ETF's top 10 holdings are Microsoft ( MSFT), AT&T ( T), Bank of America ( BAC), Procter & Gamble ( PG), Johnson & Johnson ( JNJ), Cisco Systems ( CSCO), IBM ( IBM), Intel ( INTC), Verizon ( VZ) and Google ( GOOG). In contrast, the top 10 holdings of the Russell 1000 include five stocks excluded from the Sudan Free ETF: Exxon Mobil ( XOM), General Electric ( GE), Citigroup ( C), Pfizer ( PFE) and Chevron ( CVX). The KLD Large-Cap Sudan Free SocialSM Index currently has approximately 640 stocks. The Sudan-Free ETF can only benefit as the Sudan divestment movement garners wider support. A number of state governments are enacting legislation to prohibit their public pension systems from investing in companies doing business with the African nation. Just last week, Texas and Hawaii signed divestment legislation, bringing the total to 18 states, according to the Sudan Divestment Task Force. If that keeps up, managers of state pension plans wanting an easy way to follow the law will probably consider it a no brainer to put assets into Claymore's Sudan Free ETF.