ESG may have lost some of the momentum that it had a few years ago, but that doesn’t mean clients have given up on sustainability screening. Indeed, many advisors likely have clients for whom at least some ESG allocation appeals quite a bit. Of course, while that has been true for a while, underperformance has previously hindered many approaches to the space. That puts a premium on strategies delivering performance and ESG investing opportunities.
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One particular pair of ETFs is doing just that, with strong returns combined with ESG screening. The American Century Sustainable Growth ETF (ESGY) and the American Century Sustainable Equity ETF (ESGA) have each beaten their respective Factset Segment averages per ETF Database data. ESGY has returned 25% over one year compared to 24% for its segment average per American Century Investments data. ESGA, meanwhile, has far outpaced that average, returning nearly 20% to its segment average of 13.5%.
When it comes to ESG investing opportunities, then, the pair may present an intriguing case. Both actively invest, empowering their managers to apply fundamental analysis as well as ESG screening. That could be potentially beneficial, given how many other ESG funds have to stick to an index. Tracking an index often limits ETFs’ flexibility, which is already a concern when trying to adhere to stringent ESG rules. An active ESG approach, then, could help funds stand out.
ESGA aims to generate improved returns on an ESG screen without taking unnecessary risks. ESGY, meanwhile, uses a multi-factor model to score the Russell 1000 Growth Index on top of an ESG score. Merged on an equal weight basis, the strategy creates an overall score. Both ETFs charge a 39 basis point (bps) fee.
Their approach to ESG, leaning actively into managers’ experience, could help, especially as the ESG crowd looks to augment their portfolios. ESG investing opportunities don’t always perform, but for investors on the lookout, ESGY and ESGA may appeal.
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