Look to ESG as a Quality Play in These Uncertain Times

Much has been said in the financial market space that the environmental, social and governance (ESG) growth could be experiencing its own bubble as more investors look to adopt these ESG-related products as part of their portfolios. The coronavirus pandemic will certainly put that notion to the test, but thus far, it could also be proving to be a quality play in factor investing.

One just has to look at exchange-traded fund (ETF) flows within the last few weeks to gauge investors’ appetite for ESG. Thus far, it shows they’re hungry for it.

“The fact that ESG EFTs have seen better fund flows during the last few weeks’ volatility—and indeed considerably lower outflows, with just 8 percent of such flows compared with 25 percent of all others, could be convincing investors that the future of their financial health could depend on companies that seek to sustain or promote other kinds of health through their ESG policies,” a Benefits Pro article noted.

ESG Via an ETF Wrapper

Investors who want ESG exposure via an ETF wrapper can take look at the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.

The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.

EASG Chart

EASG data by YCharts

A Comprehensive Factor Approach

Investors who are getting their toes wet with factor investing have a litany of options when it comes to choosing which fund suits their portfolios best. One way to approach the current market environment is to take a one-size-fits-all approach with funds like the Xtrackers FTSE Developed ex US Comprehensive Factor ETF (NYSEArca: DEEF).

DEEF seeks investment results that correspond generally to the performance of the FTSE Developed ex US Comprehensive Factor Index. The index is designed to track the equity market performance of companies in developed countries selected on the investment style criteria of value, momentum, quality, low volatility, and size.

As investors look into these factor-based funds or any funds for that matter, cost will always be a big determinant when it comes to how they allocate their capital. In this case, DEEF’s 0.24% expense ratio is lower than its category average of 0.37% based on Yahoo Finance profile data.

DEEF Chart

DEEF data by YCharts

For more market trends, visit ETF Trends.