ETF Prime: Burton Malkiel and Lara Crigger Talk ESG ETFs

On this week’s episode of ETF Prime, host Nate Geraci is joined by ETF Trends’ Managing Editor, Lara Crigger, to discuss ESG ETF flows and performance, along with the environmental impact of bitcoin mining. Famed economist and investing legend Burton Malkiel dives into a range of topics, including the rise of indexing, ESG, meme stocks, crypto, and more. Plus, Avantis consultant Sunil Wahal explains the “financial science” behind their investment approach.

Speaking with Crigger, Geraci brings up ESG and where things are at this midpoint in the year. As it stands, ETFs are nearing their annual record. For ESG ETFs, Crigger explains how they are on a strong path thanks to a good amount of inflows so far – somewhere around $23 billion. Keeping that pace, there’s a chance of reaching $45-50 billion in new cash for the space.

On the other hand, things are a bit behind 2020, where ESG ETFs brought in $89 billion for the year in net inflows, a record. Now, a general cool-off of the markets, given the changing nature of the past year, is at least partially to blame for the downturn in the sector. There’s been a pullback in clean energy since the U.S. election and a resurgence of fossil fuel prices.

“Some of that optimism has come back to rational levels. As a result, some of the performance chasing that you saw in the flows into ESG ETFs – that’s tempered,” Crigger adds.

With flows for ESG being lighter this year, as far as the impact performance is having, there are areas to look such as technology and clean energy ETFs, and Crigger does not doubt the role performance is playing. She also notes how the tech sector is very much involved here, as a very growth-heavy space. This has led to a rotation toward value, which hasn’t much helped either, overall for ESG.

See Also: ETF Prime: Lara Crigger Gets to the Bottom of Bitcoin ETFs 

Crigger also points out another factor, which specifically applies to clean energy ETFs, a fundamental commodity pricing issue. There are price connections between fossil fuels and alternatives that investors do not seem to realize.

Crigger states, “There’s more incentive for companies to switch to a lower or zero-emissions energy source when oil prices are high, or to engage in carbon allowances and to use that market as well.”

This is a way of seeing the supply and demand fundamentals match up with each other again. As far as what’s next for ESG ETFs, Crigger is generally optimistic but curious about which flows are going to take the flows as investor assets change. 

The Otherside Of ESG

Moving on to what Geraci discussed with Burton Malkiel, the discussion begins with a continued look at ESG ETFs and Malkiel’s skepticism toward it. The reasons have to do with the idea of touting a focus on “doing well by doing good,” which is worrisome due to how the thoughts on how the largest ESG funds may likely do neither. This comes from looking under the hood of these funds and finding how the correlations between the various raters don’t tend to line up.

Malkiel goes on to describe other reasons in regards to why he’s not over the moon for ESG. The conversation goes on to feature his thoughts concerning the rise of indexing, meme stocks, and crypto.

Later on, Wahal discusses Avantis and its DFA-like approach to ETFs in terms of an emphasis on factors such as size, value, and profitability. There’s also the matter of how Avantis measures these factors and their importance in the context of the current market environment. There’s also a discussion of meme stocks, once again, given Wahal’s college teaching experience.

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