There’s always time to evaluate ESG investing and break down some funds at a time when exploring the right areas is vital. ETF Trends’ CIO and Director of Research, Dave Nadig, spoke with TD Ameritrade’s Nicole Petallides about ESG ETFs on “Market Overtime.”
As Nadig explains, Over the past six months, the Department of Labor has made squashing ESG investing a bit of an organizational mission. They started by just asking questions earlier in the year, in May they sent letters to plan sponsors asking how plans mesh being fiduciaries with having ESG criteria for their funds but gave them only two weeks to produce a big lift.
In June, they proposed a rule to “update and clarify” guidance to retirement plans, creating strict limits about whether pensions can really use ESG factors. This is largely advancing a political agenda of the current administration. Key phrase: the DOL “reminds fiduciaries that ESG criteria cannot be prioritized ahead of financial merits.”
Watch Dave Nadig Talk ESG ETFs on TD Ameritrade
“The focus that we’ve really seen on ESG,” Nadig explains, “Is on the retail and wealth level. Retail investors who want to vote with their pocketbook, and really chase some sort of ESG factor.”
This is a significant shift in how pensions think about ESG, and now they have to prove that thinking of things in ESG terms is financially beneficial.
The good news is that data is proving that. Across the entirety of ESG funds (some 112), the average YTD return is 8.7%, and flows have been 19B so far this year. Even if an investor is just trying to get some ESG in your S&P 500 exposure, that’s going to be great: the Xtrackers S&P ESG Equity ETF, SNPE, is up 10.5% YTF< vs. 7.9% for SPY.
Nadig continues, “What we’ve seen is that ESG products have been great risk management vehicles. They have been, by default, picking those winners and losers.”
Scoring For ESG
Investors are getting smart: companies with terrible ESG scores are riskier, in declining industries, and have a harder time tracking employees. Companies with high ESG scores tend to be in hot/growing industries (tech, alt energy, consumer products), better governance (reducing risk), and a more diverse employee base. Tons of research suggests that diverse groups make better decisions.
Were Nadig to highlight one set of funds folks might want to consider on ESG, it would be the Xtrackes suite from DWS. USSG and SNPE would be their flagship funds (two versions of US exposure), but they have a suite of 8 products, including fixed income, that any investor could build a portfolio from and be happy.
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