ESG ETFs Offer Both Growth and Value Opportunities

Financial advisors can generate alpha across style, size, and region with environmental, social, and governance ETF strategies.

In the recent webcast, ESG: The Key to Portfolios with Both Growth And Value, Brian Griggs, Managing Director, Portfolio Strategist, Nuveen, noted that since the late 2000s, growth has been the standout style. Lower interest rates, low inflation, and technology outperformance have helped fuel the run.

Consequently, more growth-oriented sectors, that on average trade at higher valuations, have become a larger portion of the U.S. equity market, with financials, energy, and industrials taking a back seat to information technology and now communication services.

Looking ahead, Griggs argued that fundamentals will drive future returns, with equity returns in 2021 fueled by earnings growth, which should favor value over growth. Additionally, he added that more attractive valuations can be found in non-U.S. markets, in which portfolios are often underweight.

As a way to enhance financial performance over time, Griggs highlighted responsible investments. Responsible investment volatility and risk-adjusted returns have been similar to broad market benchmarks.

Margaret Leung, Managing Director, Head of ETF Distribution, Nuveen, pointed out that demand for responsible investing continues to grow.

Leung highlighted Nuveen’s ESG investment methodology that implements ESG integration, engagement, and impact investing. Additionally, the company measures, manages, and drives positive environmental and social impact through investing practices, along with accelerating investor demand and the reallocation of capital to areas that contribute to the UN Sustainable Development Goals (SDGs).

After the Covid-19 outbreak, we have witnessed a shift in ESG priorities. Leung highlighted strong company ESG management, specifically around “S&G” factors, which should play an important role in mitigating downside risk and preserving long-term value during this current outbreak. On the other hand, poor ESG management could lead to greater negative impacts, such as a lack of business continuity planning and poor human capital management, all leading to greater and more extended business disruptions. Leung believes that investment in and management of the “S” factor now, and in the future, could lead to a greater competitive advantage over peers in the wake of the pandemic.

Nuveen offers a suite of passive index-based ETFs that adhere to predetermined ESG, controversy, controversial business involvement, and low carbon criteria, including the Nuveen ESG Large-Cap Value ETF (BATS: NULV), Nuveen ESG Large-Cap Growth ETF (NULG)Nuveen ESG Mid-Cap Value ETF (NUMV), Nuveen ESG Mid-Cap Growth ETF (NUMG), and Nuveen ESG Small-Cap ETF (NUSC).

The Nuveen ESG International Developed Markets Equity ETF (NUDM) and Nuveen ESG Emerging Markets Equity ETF (NUEM) also align investors’ international equity investments with their values.

Lastly, there are options for fixed income investors who are interested in socially responsible investments. For example, the Nuveen ESG U.S. Aggregate Bond ETF (NYSEArca: NUBD) and the Nuveen ESG High Yield Corporate Bond ETF (NUHY) help fixed income investors pair their bond investment needs with ESG principles.

Financial advisors who are interested in learning more about ESG strategies can watch the webcast here on demand.