There’s still a strong fundamental case for accessing stocks with solid sustainability traits. But for some investors, it can be cumbersome to identify multiple names fitting that bill.
Exchange traded funds such as the Invesco ESG Nasdaq 100 ETF (QQMG) ease that burden. In fact, QQMG is home to an expansive roster of companies with attractive sustainability characteristics. As its name implies, QQMG is an environmental, social and governance fund (ESG). While ESG and sustainability are distinct phenomena, there are indelible links between the two. The ETF wrapper makes it easier to tap into ESG and sustainability through one vehicle.
Those are among the positive attributes found with QQMG, which holds 94 stocks and turns three years old in October. Additionally, many of QQMG’s member firms fit the bill as wide moat names. That means they enjoy significant competitive advantages over rivals — something that be beneficial over the long term.
Why Sustainability Matters
Companies that prioritize ESG and sustainability have the potential to avoid related controversies. That reduces risk to investors.
“A company’s approach to sustainability demonstrates how it anticipates and addresses these long-term risks. Companies that mishandle ESG issues could incur significant economic costs that jeopardize their ability to earn long-term, maintainable profits,” according to Morningstar.
The research firm recently revealed its 2024 edition of the “best sustainable companies” to own in 2024. That list includes multiple members of the QQMG portfolio, including Microsoft (MSFT), which is the ETF’s largest holding at a weight of 11.41%.
Some other QQMG technology components are also found on the Morningstar rankings. Those include Cisco Systems (CSCO) and Autodesk (ADSK). Technology is one of the sectors with a plethora of firms with compelling sustainability traits. That’s relevant to investors considering QQMG because the Invesco ETF devotes more than 60% of its weight to that sector.
Count Apple (AAPL) and TurboTax parent Intuit (INTU) among the other QQMG holdings appearing on the Morningstar list. That duo combines for over 10% of the ETF’s roster. Both of those companies fit the bill as wide moat names.
A point to keep in mind is that the Morningstar rankings are rooted in sustainability metrics, not valuation. As such, some of the QQMG firms on the list may be considered richly valued, but that’s not an indictment of the fund.
“From that perspective, not all the names on this catalog of low-ESG-risk companies with wide moat ratings can be considered a buy at the moment. Still, for investors interested in managing long-term ESG risks, they’re worth keeping a close eye on,” concluded the research firm.
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