With value stocks outperforming growth and energy ranking as the leading sector in the S&P 500, environmental, social, and governance (ESG) exchange traded funds are scuffling this year.
Rough performance is stoking criticism of ESG investing, but some experts remain bullish on ESG, and that could pave the way for growth for ETFs, including the Invesco ESG NASDAQ Next Gen 100 ETF (QQJG).
QQJG tracks the Nasdaq Next Generation 100 ESG Index — the ESG offshoot of the Nasdaq Next Generation 100 Index. That benchmark is home to the names most likely to be promoted to the famed Nasdaq-100 Index (NDX). QQJG turns a year old in October, and while it’s clearly new on the ESG ETF scene, it could be a successful ETF one day.
“Environmental social and corporate governance (ESG) is a risk management tool to cater to long-term risks that organizations are likely to face in the future. It is a fast-growing sector of finance, and, according to Bloomberg Intelligence, global ESG assets are likely to surpass $41 trillion in 2022 and $50 trillion by 2025,” according to the World Economic Forum (WEF).
Those data points are testament to asset allocators’ affinity for ESG and how its applications via the ETF wrapper have room to grow. QQJG is certainly relevant in that conversation for multiple reasons.
First, as the ESG ETF landscape expands, advisors and investors are placing increasing emphasis on avoiding greenwashing and embracing strategies that are easy to understand. QQJG checks those boxes. Second, the current ESG equity-based ETF space is dominated by large-cap products. For its part, QQJG fills an important void by being primarily allocated to larger mid-cap and smaller large-cap fare.
To the point about simplicity and straightforward approaches, those could be compelling selling points for QQJG because a case can be made that the universe of ESG ratings is becoming too complex for the tastes of many fund investors.
“There are over 600 ESG reporting standards. Some companies use their own custom frameworks and select their own parameters and standards created by the industries themselves without any regulatory oversight. Furthermore, companies are compared against their peers in their own industry, which explains why some oil giants are included, but companies such as Tesla are excluded from the list. Different standards create inefficiencies and undermine their integrity and utility,” added the WEF.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.