By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel generally agrees that URTH outperforms NZAC in terms of pure performance, but NZAC's climate-aligned ESG screen and emerging market exposure introduce different risk premia that could pay off in the long run. However, the higher beta and smaller AUM of NZAC pose significant risks, including liquidity issues and potential underperformance in certain market conditions.
Risk: The higher beta and smaller AUM of NZAC pose significant risks, including liquidity issues and potential underperformance in certain market conditions.
Opportunity: NZAC's climate-aligned ESG screen and emerging market exposure introduce different risk premia that could pay off in the long run.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
The State Street SPDR MSCI ACWI Climate Paris Aligned ETF (NASDAQ:NZAC) and the iShares MSCI World ETF (NYSEMKT:URTH) both offer investors a simple way to buy global stocks in a single fund. But while NZAC applies a strict climate screen and includes emerging markets, URTH sticks to a mix of developed-world giants with no such filter.
| Metric | URTH | NZAC | |---|---|---| | Issuer | iShares | State Street | | Expense ratio | 0.24% | 0.12% | | 1-year return (as of July 31, 2026) | 20.62% | 17.48% | | Dividend yield | 1.40% | 2.06% | | Beta | 0.96 | 1.04 | | AUM | 8.1 billion | $192.3 million |
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
NZAC is the cheaper of the two funds, charging a 0.12% expense ratio versus 0.24% for URTH. It also pays a higher dividend yield of 2.06%, compared with 1.40% for URTH.
| Metric | URTH | NZAC | |---|---|---| | Max drawdown (5 yr) | (26.04%) | (27.65%) | | Growth of $1,000 over 5 years (total return) | $1,721 | $1,574 |
Over the last five years, URTH has posted higher returns while also experiencing a modestly smaller maximum drawdown than NZAC.
Launched in 2014, NZAC tracks an index designed to limit exposure to climate transition risk while working toward net-zero goals, and applies an ESG screen that meets Paris Aligned Benchmark standards. The fund spreads its investments across 624 holdings, led by Nvidia (NASDAQ:NVDA) at 5.7%, Apple (NASDAQ:AAPL) at 4.6%, and Microsoft (NASDAQ:MSFT) at 2.9%. Its top sectors include technology at 36.6%, financial services at 16.2%, and healthcare at 9.2%.
URTH casts a wider net, holding 1,284 stocks across developed markets, with no climate or ESG filter applied. Its top three holdings are identical to NZAC’s -- including Nvidia at 5.2%, Apple at 4.8%, and Microsoft at 3.0%. Its sector mix is slightly less tech-heavy, with 30.9% in technology, 15.7% in financial services, and 11.4% in industrials. URTH was launched in 2012.
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This comparison illustrates a trade-off most ETF investors eventually face: cost and income versus performance. NZAC's lower expense ratio and higher yield are real advantages, and for investors who specifically want their global stock exposure to come with a climate mandate, that screen is the whole point of owning the fund. But cheaper and higher-yielding hasn't translated into better returns here. URTH's stronger one-and five-year performance -- as well as its smaller drawdown -- suggests that sticking to established developed-market blue chips without an emerging-markets tilt or an ESG filter has been the better move.
That’s not a red flag for NZAC -- thematic and screened funds tend to behave differently than the broader market by design. Adding specific selection criteria changes a fund's profile, sometimes for the better and sometimes not.
These ETFs were simply built for different priorities. Investors who care most about aligning their holdings with climate goals may find NZAC's lower cost, higher dividend yield, and emerging-market coverage appealing. URTH, on the other hand, tends to suit investors who prioritize simpler global exposure -- those who already have emerging-market exposure elsewhere and would rather not duplicate it, or who are simply skeptical of how screening methodologies can impact a fund’s returns over time.
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Andy Gould has positions in Apple and Nvidia and has the following options: long January 2027 $125 calls on Nvidia, short August 2026 $355 calls on Apple, and short January 2027 $125 puts on Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"NZAC's structural advantages in cost, yield, and climate alignment may outweigh recent performance shortfalls for long-term investors, but only if ESG premia materialize."
The article presents NZAC as the cheaper (0.12% vs 0.24%), higher-yielding (2.06% vs 1.40%) climate-aligned global ETF that includes emerging markets, yet URTH has outperformed over 1- and 5-year periods with a smaller max drawdown. This seems to favor URTH for pure performance seekers. However, NZAC's 624 holdings versus URTH's 1,284, its Paris-aligned ESG screen, and EM exposure introduce different risk premia that may pay off over longer horizons if climate regulation tightens or EM equities rebound. The 5-year return gap ($1,721 vs $1,574 per $1k) is modest given NZAC's cost edge; forward-looking, NZAC's beta of 1.04 suggests it could amplify upside in a risk-on environment.
If climate and ESG screens systematically underweight high-carbon but high-return sectors like energy or certain industrials, NZAC could continue lagging URTH indefinitely, especially while developed-market tech giants dominate returns; the article's performance data already shows this drag, and tighter Paris alignment may force even more divestment from outperformers.
"NZAC is not a true global equity proxy but a thematic bet that sacrifices tracking error and sector diversification for lower fees and ESG alignment."
The comparison between NZAC and URTH highlights a classic divergence between broad-market beta and thematic ESG constraints. While URTH’s performance advantage is clear, investors must recognize that NZAC’s 0.12% expense ratio is a significant competitive edge in a low-yield, high-fee environment. However, the 'climate screen' in NZAC is a double-edged sword; it effectively creates a massive tracking error against the MSCI World index by underweighting traditional energy and heavy industry. If we enter a cycle where energy prices spike or 'brown' sectors outperform due to supply constraints, NZAC will likely see its performance gap widen further. Investors aren't just buying global stocks here; they are making a macro bet on the pace of the energy transition.
If the energy transition accelerates faster than current market pricing, NZAC’s climate-aligned portfolio could see a massive valuation re-rating that makes URTH’s 'dirty' index look like a value trap.
"NZAC's 42x smaller AUM and 8.5% five-year return deficit versus URTH suggest the climate screen has destroyed value, not merely redirected it."
The article frames this as a cost-versus-performance trade-off, but the real story is hidden in the AUM disparity: URTH has $8.1B vs. NZAC's $192.3M. That 42x gap signals market rejection of NZAC's climate screen, not just different investor priorities. Over five years, NZAC underperformed URTH by ~$147 per $1,000 invested—a 8.5% drag. The climate screen excluded winners (or included laggards). The higher 2.06% yield on NZAC likely reflects lower capital appreciation expectations priced in by the market, not genuine income advantage. Emerging-market inclusion sounds diversifying but hasn't helped returns. The article treats this as neutral design choice; it's actually a performance headwind.
Climate-screened funds may outperform going forward if carbon transition accelerates and stranded assets crater—the five-year backward look doesn't predict forward ESG alpha, especially if regulatory pressure shifts capital allocation.
"NZAC's climate filter and EM tilt introduce persistent tracking risk and liquidity constraints that make it unlikely to beat URTH over a multi-year horizon, despite its cheaper fee and higher yield."
The article frames NZAC as a cheaper, higher-yield climate play vs URTH, but the real risk is the structure, not the fee. NZAC’s climate Paris-aligned mandate and EM exposure create tracking error relative to URTH, and likely underperform in a broad growth backdrop led by tech giants. With 624 holdings vs URTH’s 1,284, the fund is less diversified; Nvidia, Apple, and Microsoft dominate, so a few stock moves can swing the entire fund. The small USD 192m AUM also raises liquidity/spread risk, especially in stress. In a rising-rate, risk-on environment for non-climate beta, URTH’s broad, filter-free exposure should continue to outperform.
If climate policy accelerates and EM growth surprises, NZAC could close the gap or outperform, particularly if the regime rewards climate-aligned, EM-inclusive tech exposure.
"NZAC's minuscule AUM creates its own liquidity penalty that the article and panel understate."
Claude's AUM-rejection thesis ignores that NZAC's tiny size itself creates a self-reinforcing liquidity discount and wider spreads, amplifying the performance drag beyond the climate screen. The 42x gap isn't pure market wisdom; it's also path dependence. Nobody has flagged how NZAC's higher EM beta (1.04) could compound losses in a China-hard-landing scenario that URTH largely sidesteps.
"NZAC’s underperformance is driven as much by liquidity friction and EM beta exposure as it is by its climate-aligned mandate."
Claude, your focus on AUM as a proxy for 'market rejection' ignores the institutional inertia of URTH’s legacy as a core allocation. The real risk isn't just the climate screen; it’s the tax-loss harvesting and liquidity friction inherent in a $192M fund compared to the $8.1B behemoth. Grok’s point on EM beta is crucial: NZAC isn't just an ESG play; it's a leveraged bet on EM growth that is currently being crushed by the USD strength.
"NZAC's underperformance stems from overlapping structural drags (climate exclusion + EM overweight), not AUM size alone, making forward outperformance require both energy transition acceleration AND EM rebound simultaneously."
Gemini and Grok both flag EM beta as a drag, but neither quantifies it. NZAC's 1.04 beta vs. URTH's implied ~0.95-0.98 means in a 10% EM selloff, NZAC loses ~40-60bps more. That's real. But Claude's AUM-rejection framing conflates size with quality—Vanguard's ESG funds are small yet perform fine. The actual issue: NZAC's climate screen + EM tilt is a *compound* headwind, not a market-wisdom signal. Path dependence matters.
"AUM size is not a reliable signal of quality; NZAC's EM tilt and climate screen create tracking error and liquidity risks that could dominate performance unless policy tailwinds materialize."
Responding to Claude: The AUM gap matters for liquidity and spreads, but it's not pure market rejection—it's a structural risk from NZAC's smaller, EM-heavy basket amplifying tracking error. A new risk is currency and liquidity drag from EM in a persistent USD rally, causing slippage. If climate policy accelerates, NZAC could rerate quickly, but that hinges on a strong policy tailwind and timing.
The panel generally agrees that URTH outperforms NZAC in terms of pure performance, but NZAC's climate-aligned ESG screen and emerging market exposure introduce different risk premia that could pay off in the long run. However, the higher beta and smaller AUM of NZAC pose significant risks, including liquidity issues and potential underperformance in certain market conditions.
NZAC's climate-aligned ESG screen and emerging market exposure introduce different risk premia that could pay off in the long run.
The higher beta and smaller AUM of NZAC pose significant risks, including liquidity issues and potential underperformance in certain market conditions.