Major equity benchmarks around the world are mired in bear markets, and in the U.S., growth stocks are primary culprits. However, that’s not straining investors’ affinity for environmental, social, and governance (ESG) exchange traded funds — funds which are typically heavy on growth stocks. Those include the Invesco ESG NASDAQ Next Gen 100 ETF (QQJG) and the Invesco ESG Nasdaq 100 ETF (QQMG). Although August wasn’t the best month on record for equities, market participants continued directing capital to ESG ETFs.
Globally listed ESG ETFs “gathered net inflows of US$2.74 billion during August, bringing year-to-date net inflows for 2022 to US$54.15 billion,” according to ETFGI.
The large-cap QQMG and QQJG both turn a year old on October 27, indicating that the funds came to market prior to the aforementioned deterioration in growth stocks. No ETF issuer has a crystal ball, so timing should not be held against QQJG and QQMG.
What’s relevant here is the long-term growth trajectory of ESG ETFs as an asset class and the point that amid some trying circumstances, these funds continued gathering assets in August.
“The S&P 500 decreased by 4.08% in August and is down by 16.14% YTD in 2022. Developed markets excluding the US decreased by 4.39% in August and are down 19.53% YTD in 2022. Sweden (down 10.80%) and Netherlands (down 9.52%) saw the largest decreases amongst the developed markets in August,” noted ETFGI founder Deborah Fuhr.
While critics are apt to argue that QQJG and QQMG were poorly timed from a performance perspective, that sentiment applies to nearly all traditional beta ETFs that have come to market over the past year. Conversely, QQJG and QQMG could eventually prove to be well-timed because growth stocks won’t remain in the tank forever and there’s clear demand for ESG ETFs.
“Since the launch of the first ESG ETF/ETP in 2002, the number and diversity of products have increased steadily. Globally there 1,157 ESG ETFs, with 3,446 listings, assets of $464 Bn, from 208 providers on listed on 44 exchanges in 35 countries. During August, 26 new ESG ETFs/ETPs were launched.”
Further supporting the long-haul case for the Invesco ETFs is their easy-to-convey strategies — a significant advantage at a time when advisors continue expressing the need for more ESG education.
“Confusion persists around what constitutes an ESG fund. According to PRI, a UN-supported initiative which seeks to understand the investment implications of ESG issues, 56% of adopters believe there is a lack of clarity in ESG definitions,” concluded Fuhr.
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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.
