Investors who feel that sustainable and environmental, social, and governance (ESG) investing isn’t getting as much attention as it did a couple of years ago are probably on to something with that sentiment. Perhaps that’s a good thing, considering the political vilification endured by ESG investing over the past few years.
At the corporate level, companies are discussing ESG less and altering their verbiage, but they haven’t abandoned it. While sustainable and ESG investing styles may now be flying under the radar, it should not be inferred from that scenario that those methodologies are dead. Nor does it imply that ESG-linked instruments are delivering subpar performances this year. Take the case of the Invesco ESG Nasdaq 100 ETF (QQMG).
QQMG, which follows the ESG offshoot of the widely observed Nasdaq-100 Index (NDX), is higher by 15.93% since the start of 2024. That’s an advantage of 156 basis points over its stablemates that track NDX. It’s just one example, but the sturdiness displayed by QQMG this year proves there’s still merit in ESG investing.
QQMG Quietly Impresses
Year-to-date isn’t a lengthy amount of time, but QQMG beating NDX on that basis is impressive for another reason: not many global sustainable funds are beating their benchmarks in 2024.
“Global large-cap sustainable funds are up 10.9% so far this year, lagging the 14.8% return for the MSCI ACWI Large Cap Net Return Index, and 12.8% return for the Morningstar Global Markets Index (net return), based on a screen of 1,402 funds,” noted Morningstar analyst Quinn Rennell.
As Rennell points out, semiconductor giant Nvidia (NVDA) is one of the stocks supporting the 2024 upside for sustainable funds. That’s pertinent when evaluating QQMG because Nvidia is the ETF’s third-largest holding at a weight of almost 10%.
Overweighting technology stocks is often cited as a primary reason why some sustainable and ESG funds deliver durable performances, and QQMG embraces that role. The Invesco ETF allocates over 60% of its roster to the tech sector, and five such stocks, including Nvidia, are among the fund’s top 10 holdings. That introduces vulnerabilities to ETFs such as QQMG when tech stocks falter, but the fund has some advantages that could prove relevant over the long term. Those include an emphasis on quality ESG data.
“ESG investing relies heavily on accurate and transparent data. However, not all companies provide detailed ESG reports, and some may omit information that could negatively impact their ratings. Investors must navigate this lack of transparency and work with the data available, understanding its limitations,” according to Business NewsWire.
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