ESG ETFs Could Be the Next Big Evolution in Investment Strategies

With the exchange traded fund industry continuing to grow and expand, money managers see strategies focused on environmental, social, and governance as part of the next evolution in the innovative ETF space.

“We see ESG becoming a bigger and bigger part of investors’ concerns and something they’re going to be looking at very closely,” Daniel Noonan, Executive Vice President, Head of ETF Sales, U.S. Global Wealth Management, PIMCO, said at the Inside ETFs conference.

For example, PIMCO recently came out with the PIMCO Enhanced Short Maturity Active ESG ETF (NYSEArca: EMNT), which aims to offer higher income than traditional cash investments, with a modest increase in risk and focuses on issuers with high quality environmental, social, and governance (ESG) practices.

EMNT is based on the success of PIMCO’s Enhanced Short Maturity Active Exchange-Traded Fund (MINT) and invests in high-quality money market instruments and short-term fixed income securities. The fund blends PIMCO’s active fixed income management with its disciplined ESG investment framework. The framework favors issuers identified by PIMCO as best-in-class, with robust environmentally conscious practices, strong corporate governance, and industry-leading social policies.

Additionally, PIMCO rolled out the PIMCO RAFI ESG U.S. ETF (RAFE), which is benchmarked to the Research Affiliates RAFI ESG US Index and seeks to outperform market capitalization-weighted indices while investing in ESG-conscious companies.

The fund utilizes Research Affiliates’ time-tested Fundamental Index™ approach which weights stocks by economic size, rather than by market capitalization, and is built on the principles of contrarian investing and disciplined rebalancing, offering the potential for improved returns. This is paired with Research Affiliates’ unique approach to ESG, investing in ESG-conscious companies as well as incorporating two additional metrics linked to improved return potential – financial discipline and diversity.

Watch Daniel Noonan Discuss ESG ETFs:

For more ETF-related commentary from Tom Lydon and other industry experts, visit our video category