As investors rotate out of technology, it might seem that the ESG arena would not be affected, but the two are more correlated than one might think. Since the popularity of ESG has skyrocketed in recent times, big tech was quick to incorporate sustainability in their business operations.
As such, some funds to watch include the SPDR S&P 500 ESG ETF (EFIV). The fund seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of an index that provides exposure to securities that meet certain sustainability criteria (criteria related to environmental, social and governance (“ESG”) factors) while maintaining similar overall industry group weights as the S&P 500 Index.
In seeking to track the performance of the S&P 500 ESG Index (the “index”), the fund employs a sampling strategy, which means that it is not required to purchase all of the securities represented in the index. Overall, EFIV gives investors:
- Investment results that, before fees and expenses, correspond generally to the S&P 500 ESG Index.
- Exposure to an index that is designed to select S&P 500 firms meeting certain sustainability criteria (criteria related to environmental, social and governance factors) while maintaining similar overall industry group weights as the S&P 500 Index.
- Potential ESG core exposure, based on its focus on sustainability criteria and comprehensive market coverage of the flagship core S&P 500 Index.
As a Bloomberg article noted, “The lurches in technology stocks this week are sending a warning to environmental, social and governance-focused funds: Your former superstars may now weigh you down.”
The article added that “While the Nasdaq 100 Index rose for the first time in three days on Wednesday, it’s still down about 1.6% on the week. This will be felt through many ESG ETFs, since tech giants such as Apple Inc. and Microsoft Corp., with their relatively small impacts on the environment, are heavily represented in socially conscious portfolios.”
“A rotation away from tech, particularly if that’s combined with the traditional energy sector coming back into favor, could spell doom for ESG ETF performance,” said Nate Geraci, President of the ETF Store. “There’s the potential for meaningful underperformance in this space that I’m not sure ESG investors are fully aware of.”
Despite EFIV holdings in companies like Apple and Microsoft, the fund’s performance has been positive, up 9.42% since July 27. With a relatively low expense ratio of 0.10%, investors can still get ESG exposure in the S&P 500 on the cheap.
For more news and information, visit the ESG Channel.