iShares Explores ESG, Global Investing And The Role of Smart Beta

ETF investors looking abroad for the right take on allocation and other global trends, let alone those staying domestic and working on management of risk, should consider what aspects contribute to these areas and what’s to come.

In the recent virtual event, Three Themes for 2021: An iShares & MSCI Investing Symposium, multiple speakers addressed some of the biggest trends and opportunities in the markets today, based specifically around ESG investing importance, new thinking on factors, and international diversification.

In particular,  Sarah Kjellberg, Director, Head of U.S. iShares Sustainable ETFs, MSCI’s Guillermo Cano, Executive Director, Index Solutions Research, Jeffrey Spiegel, US Head of iShares Megatrend and International ETFs, MSCI’s Raina Oberoi, Managing Director, Head of Americas Index Solutions Research, Blackrock’s head of Factor ETFs, Bob Hum, and MSCI’s Anil Rao, Executive Director, Index Solutions Research, were all on hand to explore international investing and delve into the current role of smart beta in panels moderated by ETF Trends’ CEO Tom Lydon.

Lessons Of ESG

Understanding areas that worked out this year means seeing why an ESG strategy is critical to success. Investing in Environmental, Social, and Governance focused ETFs is nothing new. Yet, the past 2 years have brought a sea change in how real-world investors can use ESG effectively in portfolios.  As a result, there are lessons from the 12 Trillion dollar institutional ESG market, which detail how to marry ESG approaches with investment outlook.

Additionally, far behind simple values-based investing, current evidence suggests that ESG is both a critical risk management tool and a potential source of outperformance in the decade to come.

International Investing Ideals

During the first panel, Spiegel and Oberoi went over the right allocations to developed and emerging markets in 2021 when considering the state of things in 2020 based around Covid-19 and when considering international investing ideals.

As explained by Spiegel, the largest stocks in the U.S. have soared throughout Covid-19. This is happening despite investors largely ignoring their international exposure, given the Covid-related distractions from the economic and humanitarian impacts it has had.

In terms of how global trends are changing the traditional model of risk and reward, it was explained that international exposure could help address investor concerns with a market concentration in the U.S. As noted, factor investing has historically provided a risk or return benefit in the U.S. With that in mind, it’s not too soon to look to emerging markets.

While the world has adjusted to the new normal, the geopolitical landscape has been shifting. Tensions have never been higher in the South China Sea, the Middle East remains a hot bottom region, and the future of European recovery is still in doubt. So advisors need to maintain a global perspective.

With that being said, international factor investing has historically provided similar benefits, with some notable differences. Oberoi made clear that a factor classification scheme provides standardization for evaluating, implementing, and reporting factor exposures.

Smart Beta Still On The Brain

Looking at smart beta, it’s good to understand why the style box is just the beginning. Yes, it’s a way to manage and organize exposure, but one must consider how risk-management factors like Quality are positioned for 2021.

For the past 40 years, savvy investors have realized that factors are often the predominant driver of returns.  But the market action in 2020 has caused many advisors to take their eyes off the ball. Now, factor strategies are about much more than “when will value be back.”

This means understanding where investors should allocate to factors and when. An effective use of factors is a key pillar of risk management and portfolio construction.

Financial advisors interested in learning more about this iShares event can watch the symposium here on demand.