When it comes to ESG investing, some of the most frequently mentioned demands by advisors and investors are simplicity. They also want more clarity and uniformity pertaining to ratings and scoring.
Active management can potentially help with those objectives. Some exchange traded funds are up to the task. Enter the Calvert US Select Equity ETF (NYSE Arca: CVSE). The actively managed ETF attempts to generate returns in excess of the Russell 1000 Index.
Active management can offer environmental, social, and governance-enthused investors other benefits. That includes the potential for portfolios that are comprised of credible assets.
“As ESG investment activity has increased. So has concerns about greenwashing, which is a term centered around the environmental piece of ESG investing. And can be defined as when a company purports to be environmentally conscious but is not making any notable broader sustainability efforts. And the same can be said about asset managers who are claiming to have sustainability-oriented funds, but with minimal evidence of ESG playing a role in the stock selection process,“ according to a new report from TD Cowen.
CVSE ESG Credibility
CVSE debuted in January, making it one of the newer additions to the domestic large-cap equity ETF landscape. Nonetheless, it’s a relevant one, too.
That relevance is found on multiple fronts. First, CVSE’s annual fee of 0.29% is favorable among active funds, particularly those with the ESG overlay. Second, research indicates that when confronted with an all-things-equal ESG vs. non-ESG choice, many investors will choose the former.
“It continues to be our view that if two equities under non-ESG integration processes ‘screened’ identically around expected returns and risks. Over time more investors would likely choose to invest in the equity with a better ESG profile assuming all other attributes of the two equities were identical,” added TD Cowen.
CVSE could be exceedingly relevant for long-term investors against the backdrop of increased corporate and government investment in sustainability projects. These efforts will likely cost trillions of dollars over time. Additionally, asset allocators are pressuring companies to up their focus on social and governance issues. This could be an indication of potential advantages for actively managed strategies.
“In our view, ESG reporting and associated initiatives present opportunities to build resilience and integrate necessary capital expense projects that are viewed as more compelling when assessed through an ESG lens. Particularly, as many of these expenses have the potential to generate increased productivity and cost savings if done appropriately,” concluded TD Cowen.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.