As has been widely documented, environmental, social, and governance (ESG) exchange traded funds and those focusing on sustainability struggled in the first half of 2022 owing in large part to a rough environment for growth stocks.
Rising interest rates, which make the future cash flows of growth companies less attractive, were among the culprits weighing on growth fare. Still, inflows data indicate that some investors remained committed to sustainable ETFs in the first six months of the year.
In other words, some market participants are taking the long view of sustainable strategies, and that could be good news for ETFs such as the SPDR MSCI USA Climate Paris Aligned ETF (NZUS). NZUS tracks the MSCI USA Climate Paris Aligned Index.
“Not surprisingly, sustainable fund flows were also negative in the second quarter, but they held up much better than flows into funds overall. Their modest $1.6 billion outflow for the quarter was proportionately far less than the outflows of funds altogether. Sustainable funds had net inflows in April and June while funds overall had outflows of $90 billion,” noted Morningstar analyst Jon Hale.
For its part, NZUS debuted on April 21 and already has $145.47 million in assets under management — an impressive tally for a young ETF.
NZUS has some attractive points for sustainable-minded investors to ponder. After all, many are familiar with the Paris Climate Accords, and the fund is rooted in those principals. The ETF’s underlying index is “designed to reduce exposure to the physical and transition risks of climate change and increase target exposure to sustainable investment opportunities by incorporating the recommendations of the Taskforce on Climate Related Financial Disclosures (TCFD) and minimum requirements of the EU Paris Aligned Benchmark,” according to State Street.
NZUS is home to 297 stocks and has an annual fee of just 0.10%, confirming that it’s a cost-effective fund with the breadth necessary to adequately capitalize on Paris Climate Accords investing principles. With that modest fee, NZUS is all the more attractive to long-term investors, and it appears that many are taking that view of sustainability’s place in their portfolios.
“What does all this say about sustainable investing? It suggests, first, that sustainable investors may be more likely to stay the course during tough markets. That’s a hard thing for many investors to do. But perhaps sustainability forges a stronger connection between investors and their investments that keeps them focused on the long term,” concluded Hale.
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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.