Conviction Matters With Sustainable ETFs | ETF Trends

Large-cap funds focusing on sustainability performed admirably in the third quarter, and while the Goldman Sachs Future Planet Equity ETF (GSFP) wasn’t around for all of the third quarter — it debuted July 13 — its peers’ performance could be a sign that the new exchange traded fund is on its way to success.

A perk offered by GSFP is that it’s actively managed, meaning that it can be a high conviction idea when the managers see fit, and that’s relevant because high conviction strategies are performing well among sustainable funds.

“Over a half of the sustainability large-cap stock funds and exchange-traded funds beat the Morningstar US Large-Mid Cap Index in the third quarter, a larger percentage than the 33% of conventional large-cap funds that beat the index, according to data provided by Morningstar Direct. High-conviction funds produced some of the strongest returns,” says Morningstar analyst Leslie Norton.

Arguably, GSFP can be framed as a high conviction strategy because it focuses on companies “with solutions to reduce greenhouse gas emissions required across many different activities,” according to Goldman Sachs. Additionally, the fund is home to 51 stocks — a roster size that’s deep enough to provide breadth and small enough to focus on particular concepts (i.e. conviction). Active management is also proving noteworthy in this category, further supporting the case for GSFP.

“If there was any doubt that ESG is an active strategy, the third quarter’s strongest returns came from concentrated funds, where most of the assets reside in the manager’s highest-conviction ideas,” adds Morningstar’s Norton.

Another point cements GSFP as a credible high conviction asset. While seven sectors are represented in the new ETF, three — industrials, materials, and technology — combine for almost 77% of the fund’s weight. However, concentration risk is mitigated by the fact that GSFP allocates no more than 4.1% of its weight to any of its holdings.

Bottom line: Investors seeking the benefits of active management and focused strategies emphasizing sustainability might find a friend in GSFP, and the fund’s age is no more than a number.

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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.