Momentum continues accruing for environmental, social, and governance (ESG) exchange traded funds, and that has broad-ranging implications throughout the category.
Importantly, ESG ETFs with straightforward methodologies are likely to continue garnering assets and investors’ attention. Over the long haul, that could be a boon for the SPDR S&P ESG ETF (EFIV). EFIV has $420 million in assets under management and isn’t even two years old.
“Environmental, Social, and Governance (ESG) ETFs and ETPs listed globally gathered net inflows of US$9.81 billion during January,” said ETFGI, a London-based ETF research firm, in a note out Monday.
That marks a 37th consecutive month of inflows to ESG ETFs, which is a positive for EFIV. The SPDR fund tracks the S&P 500 ESG Index, which positions the ETF as an alternative to non-ESG broad market equity strategies. By applying the ESG overlay, EFIV’s roster is smaller than the S&P 500’s, but the fund’s bench is still deep with 308 holdings.
EFIV could capture investors’ attention for another reason: It’s easily outpacing the traditional S&P 500 on a year-to-date basis, providing further confirmation that embracing ESG ETFs doesn’t mean investors need to leave returns on the table.
“The S&P 500 decreased by 5.17% in January. Developed markets excluding the US, experienced a loss of 5.33% in January. All countries in developed markets experienced losses, with New Zealand suffering the biggest loss of 14.35%. Emerging markets decreased by 0.94% during January. Chile (up 12.44%) and Colombia (up 12.36%) gained the most, whilst Russia (down 8.74 %) and Poland (down 4.82%) witnessed the largest declines,” says ETFGI founder Deborah Fuhr.
EFIV allocates almost 31% of its roster to technology stocks, while the consumer discretionary and healthcare sectors combine for 26.6%. As noted above, this ESG ETF offers a straight methodology, which is a potentially alluring trait at a time when there’s still a major need for ESG education.
“Confusion persists around what constitutes an ESG fund. According to PRI, a UN-supported initiative which seeks to understand the investment implications of ESG issues, 56% of adopters believe there is a lack of clarity in ESG definitions. ETFGI’s classification system attempts to provide greater precision, with ETFs/ETPs listed globally organised into categories, including core ESG products and theme-based groups, such as Clean/Alternative Energies and Gender Diversity,” concludes ETFGI.
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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.