'EFIV' Bucking the Trend of Higher Fees for ESG

There’s a reason environmental, social, and governance (ESG) investing has been the darling of Wall Street as of late. Given its rise in popularity amongst investors, it’s also been a strong moneymaker for firms with its higher-than-average fees, but ETFs like the SPDR S&P 500 ESG ETF (EFIV) may be starting to change all of that.

“Sustainability has been good for Wall Street’s bottom line,” a Wall Street Journal article said. “Exchange-traded funds that explicitly focus on socially responsible investments have 43% higher fees than widely popular standard ETFs. The environmental, social, and governance funds’ average fee was 0.2% at the end of last year, while standard ETFs that invest in U.S. large-cap stocks had a 0.14% fee on average, according to data from FactSet.”

“ESG creates a fantastic revenue possibility for large firms,” said Dr. Wayne Winegarden, a senior fellow at the Pacific Research Institute.

EFIV is half the average expense ratio at 0.10%. The fund seeks to provide investment results that correspond generally to the total return performance of an index that provides exposure to securities that meet certain sustainability criteria (criteria related to 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 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.
  • Potential ESG core exposure, based on its focus on sustainability criteria and comprehensive market coverage of the flagship core S&P 500 Index.
  • A low expense ratio of 0.10%, 27 basis points below the category average.
  • Strong 12-month performance, with a 23% gain.

EFIV Chart

ESG Gets Wall Street’s Backing

According to the Wall Street Journal article, “asset managers are among the biggest cheerleaders for sustainable investing.”

While ESG fees might seem just nominally higher, they can make a big difference when all is said and done.

“Even a seemingly small increase in fees can have a big impact at scale,” the article added. “A firm managing $1 billion in a typical ESG fund, for example, would garner $2 million in annual fees versus managing the standard ETF’s $1.4 million.”

“It’s fresh, feels good and new,” said Andrew Jamieson, global head of ETF product at Citigroup Inc., of ESG. “But it’s not any different than anything else. These things aren’t any more expensive to run.”

For more news and information, visit the ESG Channel.