Some ESG ETFs Have AI Benefits | ETF Trends

It’s often said that one of the primary drivers of performance and potential out-performance delivered by large-cap environmental, social, and governance (ESG) exchange traded funds is above-average exposure to growth stocks.

As such, some ESG ETFs are credible avenues for tapping into the artificial intelligence (AI) investment theme. The Calvert US Select Equity ETF (CVSE) is part of that conversation. While CVSE’s investment objective isn’t AI, it is an actively managed fund. This means it can increase or decreased allocations to AI-related stocks and sectors as the managers see fit.

Some ESG ETFs such as CVSE have “AI in disguise” exposure. This is because many of these products, even when actively managed, are designed to be reflections of the broader market. For example, the S&P 500 allocates 29.14% of its weight to tech stocks while CVSE sports a 31.19% weight to that sector.

CVSE Has AI Chops

CVSE features significant allocations to some tech sector stocks that have long been considered leaders on the ESG front. Such companies include Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT) and Nvidia (NASDAQ: NVDA). That trio represents over 19% of the CVSE portfolio and those stocks are the ETF’s top three holdings.

Perhaps not surprisingly, Microsoft and Nvidia are among the most owned stocks by ESG funds. Apple, Visa (NYSE: V) and Mastercard (NYSE: MA), the latter two of which are also CVSE top 10 holdings, also frequently among the most widely held stocks by ESG funds. So does Eli Lilly (NYSE: LLY), which is the largest healthcare holding in the Calvert ETF.

“Most sustainable large-blend funds still aim to be suitable as core portfolio holdings, meaning that their performance should be similar to large-blend benchmarks,” said Alyssa Stankiewicz, Morningstar’s associate director for sustainability research. “To fully exclude a name such as Microsoft or Apple, which are large portions of the market, an ESG-focused fund would be courting significant performance differences compared with traditional benchmarks.”

Interestingly, many ESG funds have experienced an increase in tech exposure, which has served investors well this year.

“Dimple Gosai, head of U.S. ESG research at BofA Securities, says that while ESG funds generally have always been overweight technology stocks relative to their benchmarks, that has increased since the middle of the year,” reported Lauren Foster for Barron’s.

Beyond AI, CVSE has other important credentials. Those include a stout ESG resume as highlighted by other sector weights in addition to tech. For example, the ETF allocates 14.12% of its weight to the healthcare sector —  a group often associated with ESG.

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