Some companies have impressive environmental, social, and governance (ESG) and sustainable investing resumes. Others are working on it, while others could take a while to make related improvements. The point is that stock picking to this effect is difficult.
That’s likely one reason why so many advisors and investors in recent years have turned to ESG exchange traded funds, a groundswell many market observers believe is still in its early innings.
“The vast majority of asset managers and owners (77%) reported an increase in ESG investing interest since May 2020, driven by shifting public sentiment, regulatory developments and pressures from clients and investors, according to the Morgan Stanley Institute for Sustainable Investing,” noted the investment bank.
As Morgan Stanley pointed out, ESG ETFs, like their traditional counterparts, offer a raft of advantages to end users, and those perks are meaningful for long-term adoption of these funds.
“ETFs offer targeted market exposure without having to select individual stocks or bonds, and fees and expenses are typically lower than that of actively managed mutual funds. Investors can buy and sell shares intraday as ETFs are traded on an exchange — similar to stocks — and ETF sales generate few taxable events for ETF shareholders,” added Morgan Stanley.
For its part, the venerable Wall Street bank recently made its long-awaited entry into the ETF space in February, launching six sustainable strategies under the Calvert brand. Those products are the Calvert US Large-Cap Diversity, Equity and Inclusion Index ETF (NYSE Arca: CDEI), the Calvert Ultra-Short Investment Grade ETF (NYSE Arca: CVSB), the Calvert US Large-Cap Core Responsible Index ETF (NYSE Arca: CVLC), the Calvert International Responsible Index ETF (NYSE Arca: CVIE), the Calvert US-Mid Cap Core Responsible Index ETF (NYSE Arca: CVMC), and the Calvert US Select Equity ETF (NYSE Arca: CVSE).
Products such as CVSE and CVLC offer investors broad approaches with sustainable overlays that could make these new ETFs attractive alternatives to traditional pure beta exposures. Likewise, CVIE could be a compelling option at a time when international equities sport lower valuations than U.S. rivals and could be primed for outperformance.
CVMC, the mid-cap ESG ETF, could merit evaluation, particularly if the U.S. economy contracts. Mid-cap stocks, which have outpaced large-caps over extended holding periods, have track records of proving durable in recessions.
Bottom line: ESG ETFs aren’t going anywhere, and the long-term adoption trends appear favorable.
“In seeking sustainably focused ETFs, investors are looking for transparency: In a recent survey from the Morgan Stanley Institute for Sustainable Investing, 88% of asset owners said they want ESG reporting and disclosure, and individual investors can also benefit from these insights,” concluded Morgan Stanley.
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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.