With the MSCI Emerging Markets Index lower by almost 17% year-to-date, representing another year of disappointment, it’s understandable that many investors aren’t overly enthusiastic about equities hailing from developing economies.
On the other hand, opportunity could be knocking with this asset class, and risk-tolerant, long-term investors may want to consider the potentially potent combination of emerging markets stocks and environmental, social, and governance (ESG) principles.
Enter the SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG). REMG, which tracks the Bloomberg SASB Emerging Markets Large & Mid Cap ESG Ex-Controversies Select Index, could be the ideal mousetrap for investors looking to harness the benefits of ESG investing as it pertains to emerging markets.
“The success of investing through environmental, social and governance factors (ESG) is in the numbers. Over the last decade, the MSCI Emerging Markets ESG Leaders Index, which tracks companies with high performance in ESG metrics relative to their peers, outshone the broader MSCI Emerging Markets Index, with a 14.5 percent annualised returns versus 10.7 percent,” according to RBC.
In addition to being a fine idea for investors looking to dodge controversial and volatile Russian equities, REMG is heavily allocated to emerging economies that are prioritizing sustainability.
“Beijing and Shanghai have suffered for years under clouds of smog. According to a United Nations report, 92 percent of Asia and the Pacific’s population are exposed to levels of air pollution that pose a significant risk to their health. The report details how carbon dioxide emissions could be reduced by almost 20 percent in 2030, if 25 measures are implemented,” added RBC.
China accounts for 34.11% of REMG’s geographic exposure. Taiwan, another developing economy that’s advanced in terms of both environmental practices and social principles, represents almost 14% of REMG’s portfolio.
Home to 747 stocks, REMG has more-than-adequate exposure to the “E” in ESG, as the fund allocates almost 41% of its weight to financial services and tech stocks. However, the next mountain to climb in the ESG/emerging markets pairing is the social element. Should that effort materialize in robust fashion, it could result in significant spending that could benefit some REMG components.
“Social initiatives are integral to the emerging market investment thesis. Health care is one such key area and has the potential to improve the lives of EM citizens and also offers opportunities to investors,” concluded RBC.
For more news, information, and strategy, visit the ESG Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.