Helped by resurgent growth stocks, climate-aligned and ESG investing styles are garnering support this year. Investors are returning to these concepts.
Should that renewal of faith prove durable, it could benefit a slew of exchange traded funds, including the Invesco ESG NASDAQ Next Gen 100 ETF (QQJG). The ETF, which follows the Nasdaq Next Generation 100 ESG Index, is performing admirably this year. It could benefit as more advisors and investors evaluate unique ESG and climate-aware strategies.
Data confirms that’s exactly what’s happening and it’s occurring on a global basis. Despite myriad political controversies and increasing regulatory scrutiny, inflows in the first half of 2023 boosted combined assets under management in climate funds to $500 billion.
ESG ETF QQJG Has Distinguishing Features
QQJG celebrates its second birthday on October 27, so in ETF terms, the Invesco ETF isn’t “old.” However, it did enter an ultra-competitive, though rapidly growing, segment of the fund market.
“The global universe of funds with a climate-related strategy has surged by 30% in the past 18 months, driven by continued inflows and product development,” noted Morningstar analyst Alyssa Stankiewicz. Climate fund assets have grown at a faster clip than the global sustainable funds landscape and the broader open-end fund and ETF landscape, which have slid by 5% and 8%, respectively, since December 2021. Money invested in climate funds globally has increased 14-fold in the past five and a half years (since December 2018).”
Fortunately, QQJG has the potential to set itself apart from the pack of standard ESG and climate funds. For starters, roughly 87% of the ETF’s 94 holdings are classified as mid-cap stocks. Over the long term, mid-caps have a tendency to outperform both larger and smaller peers. Plus, the current universe of mid-cap ESG ETFs remains relatively sparsely populated.
Additionally, QQJG’s links to the widely observed Nasdaq-100 Index (NDX) are potentially attractive to investors. In essence, the ETF’s underlying index is the ESG training ground for future admittance to NDX and ESG equivalents of that benchmark. Plus, QQJG isn’t a dedicated climate fund, indicating it can defray some of the risk associated with clean tech and climate-specific strategies.
“As of June 2023, Clean Energy/Tech funds accounted for almost $14.8 billion in assets, or 47% of the total, down from a record 78% of market share at the end of 2020. Although these funds have suffered outflows, the decline is mostly attributable to falling valuations. Clean/Energy Tech funds tend to have high exposure to growth stocks, which often suffer in a rising-rate environment,” concluded Stankiewicz.
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