With a flurry of environmental, social, and governance (ESG) exchange traded funds having come to market in recent years, it’s understandable that some fly under the radar.
That’s the case with the American Century Sustainable Equity ETF (ESGA), which turns two years old in July. To its credit, while ESGA isn’t old and it doesn’t grab a lot of headlines, it’s not small. The fund has nearly $130 million in assets under management.
That’s a sign that the actively managed American Century ETF is capitalizing on advisors’ and investors’ budding enthusiasm for ESG strategies, and that momentum continues building.
“Environmental, Social, and Governance (ESG) ETFs and ETPs listed globally gathered net inflows of US$9.81 billion during January,” said ETFGI, a London-based ETF research firm, in a note out Monday.
ESGA could eventually grow into an investor favorite in the ESG ETF space because it’s actively managed. That management style could be a benefit to investors as issues such as greenwashing and ESG scoring remain prominent in this part of the fund landscape. As an active fund, ESGA can focus on legitimate ESG opportunities while avoiding companies with flimsy ESG credentials.
On that note, ESGA confirms that not all ESG ETFs are cut of the same cloth, though there are some similarities across the space.
“Many critical articles and studies incorrectly assume that all ESG funds have the same objectives and follow similar processes. In reality, there’s a broad spectrum of approaches, from passive to active, and from diversified to single theme strategies. Some seek to only own “good actors” with positive social impact while others target “bad actors” to encourage positive change through active engagement,” notes AllianceBernstein.
Another point in favor of ESGA today is that while the fund is heavy on quality mega-cap growth stocks, a sluggish start to 2022 for many of those names has valuations more attractive in that group than they’ve been in some time. That’s an indication that investors don’t have to pay up for the privilege of allocating to ESG strategies.
“Within our global investment universe of more than 2,000 stocks aligned with the United Nations Sustainable Development Goals, only 7% currently trade at price to forward earnings ratios (for the next fiscal year) in excess of 50x, while 22% have single-digit P/Es. Regardless of how one defines bubble valuations, describing ESG investing broadly as a bubble is an overstatement, in our view,” adds AllianceBernstein.
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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.
