In the realm of smart beta, one of the fastest-growing concepts is environmental, social and governance (ESG) investing. Among the ETFs that marry smart beta concepts and ESG principles is the Oppenheimer Global ESG Revenue ETF (NYSEArca: ESGF).
ESGF tries to outperform the MSCI All Country World Index with strong ESG practices and re-weights companies based on revenue earned. MSCI ESG Research utilizes a proprietary ESG scoring system and screens companies based on Sharpe Ratio, a measure of risk-adjusted performance.
The rules-based indexing methodology tries to improve their performance return through weighting each security in the index by top line revenue. Components are then rebalanced every quarter to keep the Revenue Weighted Indices in line with the companies’ most recently reported revenue levels.
ESGF, which debuted 13 months ago, is up nearly 24% year-to-date. The ETF allocates 29.2% of its weight to the U.S. followed by a 14.4% weight to Japan, one of the most attractively valued developed markets. France and Germany, the Eurozone’s two largest economies, combine for 17.7% of ESGF’s roster. Emerging markets account for 11.5% of ESGF’s geographic exposure.
Recent academic research has shown that high ESG ratings are correlated with lower cost of capital, market-based outperformance and accounting-based outperformance. Harvard Business School discovered that “high sustainability” firms outperform “low sustainability” firms over the long haul with lower volatility.
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Along with the ESG weights to potentially enhance returns and limit risks, OppenheimerFunds ETFs also implement a revenue-weighting methodology that could provide diversified exposure to the market, is not influenced by stock price, reflects a truer indication of a company’s value and offers stable sector exposure.
ESGF allocates a combined 32.4% of its weight to financial services and industrial stocks with consumer discretionary and consumer staples names combining for 25.7%. Overall, ESGF holds 1,041 stocks. ESGF charges 0.45% per year, or $45 on a $10,000 investment.
OppenheimerFunds also offers a suite of revenue-weighted ETFs that specifically focus on companies with high revenues, including the Oppenheimer Large Cap Revenue ETF (NYSEArca: RWL), Oppenheimer Mid Cap Revenue ETF (NYSEArca: RWK), Oppenheimer Small Cap Revenue ETF (NYSEArca: RWJ), Oppenheimer Ultra Dividend Revenue ETF (NYSEArca: RDIV) and the Oppenheimer Financials Sector Revenue ETF (NYSEArca: RWW).
For more information on sustainable investments, visit our socially responsible ETFs category.