Socially Responsible, ESG ETFs Are Turning Heads | ETF Trends

Investors are taking a shine to exchange traded funds that track socially responsible investments, like those based on environmental, social, and governance principles.

According to FactSet data, investors have funneled a record $27.4 billion in to ESG-related ETFs so far in 2020, doubling the size of the asset category, the Wall Street Journal reports.

The increased popularity of ESG-related ETFs has also reflected increased bets that the incoming President-elect Joe Biden could push for new legislation aimed at combating climate change, which will likely fuel demand for ESG funds over the years ahead.

In response to this higher demand for ESG investments, asset managers have also rolled out 31 ESG-related ETFs so far this year, almost double last year’s total and bringing the number of ESG-related ETFs in the U.S. to over 100, according to Elisabeth Kashner, director of ETF research at FactSet.

ESG ETFs are also under the limelight as the strategy has outperformed this year. Todd Rosenbluth, head of ETF and mutual-fund research at CFRA, partially attributed the outperformance to exceptional returns of stay-at-home stocks and shares of other companies that have rallied during the coronavirus pandemic.

For instance, the Nuveen ESG Mid-Cap Growth ETF (NUMG) surged 42% on exposure to companies like the communications software makers Twilio Inc. and Slack Technologies Inc.

Other socially responsible ETFs like the iShares Global Clean Energy ETF (ICLN) and KraneShares MSCI China Environment Index ETF (KGRN) have also doubled this year due to exposure to alternative-energy producers and electric vehicles.

The pace of ESG-related investments may continue to quicken. A BlackRock survey of 425 asset managers who oversee some $25 trillion in assets revealed plans to double their sustainable assets under management to an average of about 37% of their portfolios over the next five years.

The iShares ESG MSCI EM Leaders ETF (LDEM), which launched in February and tracks socially responsible companies in emerging markets, already brought in over $800 million in assets.

Meanwhile, SPDR S&P 500 ESG ETF (EFIV), which follows the S&P 500 benchmark for its selections, has attracted $90 million since its launch in July.

EFIV YTD Performance

“The growing supply of low-cost ESG and thematic ETFs the last few years positions the industry for additional asset growth,” Rosenbluth added.

For more news, information, and strategy, visit the ESG Channel.