Investing In Garbage: Global X Launches Waste Management ETF (WSTE)

by on April 13, 2011 | Updated April 23, 2013 | ETFs Mentioned:

Global X announced the latest addition to its rapidly-expanding ETF lineup on Wednesday, rolling out a product that offers exposure to the waste management industry. The new Waste Management ETF (WSTE) will seek to replicate the Solactive Global Waste Management Index, a cap-weighted benchmark that includes global companies engaged in the waste management and recovery and recycling industry.

Waste Management In Focus

The waste management industry is driven by a number of different factors, and can often function as a leveraged play on the overall economy. Demand for waste removal services tends to increase during economic booms and pull back when growth slows; higher levels of economic activity results in increased production of waste that must be disposed of. “The Waste Management ETF (WSTE) provides relatively easy access to a global industry that continues to grow rapidly as the world’s population and individual incomes expand along with the need to manage waste and recycle resources,” said Global X Funds CEO Bruno del Ama [see our recent Q&A With Bruno del Ama].

There are three primary areas covered by the waste management industry, including hazardous waste, non-hazardous waste, and recyvacling. As companies are increasingly held responsible for safe and efficient disposal of the waste they produce, demand for hazardous waste removal services is expected to increase going forward. New regulations govern the manner in which pesticides and petrochemicals must be disposed of, and the ongoing environmental crisis in Japan is likely to impact laws regarding the disposal and management of nuclear waste as well.

The demand for non-hazardous waste services is more directly tied to global consumption and economic activity. As countries focus more on developing and maintaining eco-friendly initiatives, the importance of non-hazardous waste removal services continues to rise as well. Like many other sectors of the global economy, waste management could be impacted by changes in the composition of emerging markets. Increases in urban populations has resulted in a demand for waste removal and recycling services that is greater than at any point in the past [see Emerging Market ETF Investing: Seven Factors To Consider].

The recycling industry has grown tremendously in recent years, and the recent rally in commodity prices will likely lead to an increase in efforts to recover raw materials from used items. A wide variety of industries, ranging from automobiles to construction,  are relying more and more on recycled materials to keep costs down.

Under The Hood

The index underlying WSTE contains 28 individual companies, with the largest allocations going to Stericycle (10%), Waste Management (10%), and Veolia Environment (10%). Nine different countries are represented in the related benchmark, including both developed and emerging economies. The largest allocations are to the U.S. (55%), China (15%), and France (12%). Other countries represented include Australia, Norway, Japan, the United Kingdom, and South Korea.

WSTE is most comparable to an existing Van Eck ETF, the Market Vectors Environmental Services ETF (EVX). That product seeks to replicate the NYSE Arca Environmental Services Index, a benchmark that includes companies that may benefit from the global increase in demand for consumer waste disposal, removal and storage of industrial by-products, and the management of associated resources. The two funds are far from identical, but do feature some overlap among the top holdings; both include big allocations to Waste Management (WM), Stericycle (SRCL), and Republic Services (RSG). EVX is tilted heavily towards the U.S., as domestic stocks make up about 85% of holdings. France (11%) and Canada (4%) make up small portions of the fund as well [find an ETF in any sector with the Free ETF Screener].

[For more on the waste management ETF, see the WSTE fact sheet. For updates on all new ETFs, sign up for our free ETF newsletter]

Disclosure: No positions at time of writing.