ESG Could Be Fertile Territory for Active Management | ETF Trends

Actively managed funds are experiencing a renaissance of sorts and with the industry looking for new frontiers that are conducive to this management, environmental, social and governance (ESG) investing stands out as a viable option.

Analysts have also questioned whether an ESG focus even leads to improved financial outcomes. The U.S. Department of Labor has taken this stance and recently proposed a rule meant to check retirement plan providers that financial gains can’t be legally sacrificed for social or political benefit.

“Global assets in ESG mutual funds and exchange-traded funds have more than doubled in the past five years to $1.3 trillion in June, according to a new report from Broadridge Financial Solutions. While Europe leads the world in ESG investing, the fastest growth is stemming from the U.S.,” reports Christine Idzelis for Institutional Investor.

Active Opportunities Abound

As sustainable investing gains traction, there is growing debate between the need for investments to do good or providing better risk management and performance.

“Active funds saw 52 percent of net ESG flows in the U.S. in 2019 — a share that dropped to 35 percent in the first half of 2020, according to the report. Still, the pandemic has not slowed investor demand for ESG, with active and passive funds together attracting a record volume of assets in the first quarter that was matched in the following three months,” according to Institutional Investor.

ESG investing was a niche corner of the capital markets, but it gained traction quickly and has become a household name even during the height of the Covid-19 pandemic. As such, some market experts posit that ESG will become a mandatory part of an investor’s portfolio.

According to Institutional Investor: “Despite the rising popularity of index funds, ESG represents one of the most attractive segments for active fund managers,” Broadridge said in the report. Eighty-one percent of assets overseen by European ESG funds are actively managed, compared to 68 percent for the U.S.”

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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.