Is the ESG Takeover Inevitable? State Street's EFIV ETF

More money keeps on flowing into environmental, social, and governance (ESG) investing, which bodes well for the ETF landscape and funds like the S&P 500 ESG ETF (EFIV).

“Investors poured record amounts of money into environmental, social and governance-based funds in 2020 as the pandemic, climate disasters and racial injustice came into sharp focus,” a CNBC article said, noting that 1 in 4 invested dollars nowadays goes into ESG funds.

After a stellar 2020, will 2021 become a sophomore slump for more sustainable investing?

Analysts don’t think so.

“That momentum will grow in 2021 and beyond, according to Cowen,” the article said. “The firm noted that roughly one in four dollars in the U.S. is now invested through an ESG lens. If two equities offer similar expected risks and returns, investors are increasingly likely to choose the name that screens better on sustainable investing scores.”

“Indeed, sustainable funds attracted a record $51.1 billion in inflows in 2020, according to data from Morningstar. That figure more than doubled 2019′s prior record,” the article added further.

The MSCI ACWI ESG Focus index is up just a shade under 4% so far in 2021. The index is up over 70% over the course of the past year.

^MSACWIESGF Chart

A Low Cost ESG Alternative

The average ESG ETF ratio stands at about 0.20%. EFIV is half of that, with a paltry ratio of 0.10%.

EFIV 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 ETF 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.
  • A strong 12-month performance, with a 21% gain.

EFIV Chart

For more news and information, visit the ESG Channel.