Although the idea of socially responsible ETFs that focus on environmental, social and governance (ESG) is not relatively new, it’s still struggling to break into the investment mainstream, particularly in the fixed-income space. This is exactly what the next generation of financial advisors are clamoring for according to a survey by Incapital LLC, a leading underwriter and distributor of fixed income securities.
Among financial advisors with three to nine years of experience, 99 percent of those using individual bonds discussed the topic of social impact and ESG goals with their clients. This represents a 25 percent increase compared to advisors with over 10 years of industry experience.
“This generation has had more access to information on social impact investing than any before them, so it is no surprise that millennials and the generation of advisors that serve them, are like-minded in their support of results-driven causes,” said Louise M. Herrle, Managing Director and Head of Incapital’s Legacy™ platform for distributing social impact investments. “They understand that they can achieve their clients’ financial goals with investments that reflect their personal values.”
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Among the advisors surveyed, the majority used equity assets as the prime investment vehicle for attaining ESG goals. Meanwhile, fixed-income assets were less utilized.
- Actively managed equity mutual funds: 44%
- Individual stocks: 35%
- Equity ETFs: 31%
- Fixed income actively managed mutual funds 30%
- Bonds: 29%
- Fixed income ETFs: 22%
However, 58 percent of those advisors with three to nine years of experience shared the notion that too many equity ESG options exist and not enough fixed income ESG options were available to present to more conservative investors. On the other hand, only 34 percent of advisors with over 10 years of experience agreed–a clear generational dichotomy in terms of investment perspectives.
“Advisors are looking for options that best match their clients’ risk tolerance,” said Ms. Herrle. “Equity ESG funds may have too much risk for some conservative clients. Advisors are finding that social impact bonds — which do carry credit risk but also the benefits of income predictability, return of principal at maturity and declining interest rate risk as the maturity date approaches — can be utilized as part of a conservative income portfolio strategy.”
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