Have clients new or old who want to get into ESG? While the space has lost some of its luster compared to its heights a few years ago, plenty of investors still want sustainably-minded investments. In many cases, those ESG screens may already be included in mutual funds and ETFs. A specifically-constructed ESG ETF, however, could appeal to clients who want ESG, given their explicit focus. Advisors need not fret, with some potent options available in the ETF wrapper.
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Yes, many advisors have looked askance at ESG funds in the past due to their relative underperformance. That being said, some funds have performed well while also meeting their ESG goals. Those funds sometimes meet those performance goals simply by tracking popular indexes that are broadly similar to the likes of the S&P 500. Some, however, add an equity spin that can outperform and help clients who want ESG meet their goals.
ESG ETFs Can Meet the Needs of Clients Wanting ESG
Consider, for example, a growth-oriented ESG ETF like the American Century Sustainable Growth ETF (ESGY). The fund actively invests in large-cap growth stocks with positive fundamentals and ESG metrics. Charging 39 basis points, the fund hit its three-year ETF milestone earlier this year. ESGY assigns each stock in the Russell 1000 Growth index both an ESG score and a financial score.
The strategy considers company earnings, cash flow, price-to-earnings, and more. For an ESG score, its managers pull third-party data on top of their own internal data to pick the highest-scoring names from each sector.
That has helped ESGY return 38% over the last one-year period, per American Century Investments. Looking at ETF Database data, that return outpaced the fund’s FactSet Segment average over one year. For advisors looking for ESG ETFs for clients, ESGY can play a helpful role.
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