As bond yields remain low, income has become increasingly important for investors—while at the same time, there grows more urgency for ESG considerations and environmental stewardship. Fortunately, investors have a number of options to simultaneously generate income while optimizing the environmental, social, and governance (ESG) factors of their portfolios.
The three highest-yielding ESG ETFs are the Invesco MSCI Sustainable Future ETF (ERTH) at 15.02%, Collaborative Investment Series Trust Trend Aggregation ESG Fund (TEGS) at 10.49%, and Impact Shares YWCA Women’s Empowerment ETF (WOMN) at 5.47%.
Welcome to ERTH
With Portland hitting 116 degrees on June 28th, climate change is no longer something happening down the road – it is happening now. Companies that are focused on alternative energy and sustainable futures have tremendous upside as the economy begins to pivot away from unsustainable practices.
ERTH invests over 90% of its holdings in companies that offer products and services that contribute to sustainable futures.
It tracks the MSCI Environmental Select Index, which has six environmental themes: alternative energy, energy efficiency, green building, sustainable water, pollution prevention and control, and sustainable agriculture.
ERTH has holdings you would expect, like Vesta Wind Systems A/S (VWS), which designs and manufactures wind turbines; and Tesla (TSLA). But the fund also has some surprises, like Digital Realty Trust, a technology/data management firm with more green buildings than any other provider.
Talking About TEGS
With dividend yields north of 10%, the actively managed TEGS takes a fund-of-indices approach, investing 80% or more of its assets in the securities in indexes of ESG equity and fixed income benchmarks from MSCI and Russell.
The advisor also may apply a variety of ESG screens on top of the ESG indices, which it may rotate between without limitation, offering some advisor discretion as to an issuer’s environmental risk, business relationships, governance practices, and more.
The fund also uses a quantitative process to consider company dividend growth, liquidity, sector diversity, and potential for capital appreciation. The fund uses tactical models to determine which sectors to buy and sell, as well as divergence analysis.
The WOMN ETF
The WOMN ETF, which currently has a dividend yield of 5.5%, tracks the Morningstar Women’s Empowerment Index and uses a scoring methodology designed to provide exposure to companies with strong policies and practices in support of women’s empowerment and gender equality.
The holdings are full of companies like Microsoft (MSFT), which is known for both workforce and leadership inclusivity and strong work-life balance.
Companies are scored on pay equality, parental leave policy, scheduling flexibility, and even the diversity of their suppliers.
Something else that makes WOMN unique: its issuer, ImpactShares, is a non-profit, meaning that all profits are returned to the charities the issuer has partnered with (in this case, YWCA Chicago).
For more news, information, and strategy, visit the ESG Channel.