With the popularity spike of environmental, social, and governance (ESG) investing amid the coronavirus pandemic, it’s almost natural that alternative strategies like quantitative filters would enter the space. This could be the start of a Sabermetrics-like move from baseball to other popular sports.
It’s not that ESG needs the help—even during the pandemic sell-offs, ESG was able to mute the effects better than other sectors. Market experts only see the ESG space doing better as the global economy looks to reopen and ease lockdown restrictions.
“Our view is that ESG can and should do better,” says Basil Williams, CEO of alternative investment manager Welton Investment Partners, whose algorithm is able to track interest rates, commodity prices, currencies, P/E ratios, and other market indicators.
Per an Impact Alpha report, “while ESG can help avoid company-specific ‘idiosyncratic’ risk, he says, most ESG funds are long-only and therefore subject to broader market trends. The firm’s new ESG Advantage, launching this week, combines quantitative models with ESG screens to protect responsible investors from market upheavals.”
“The COVID crisis,” Williams told ImpactAlpha, speaking about the Welton “has refocused people on the fact that there is investment risk, and it’s often highly unpredictable.”
ImpactAlpha noted that “Welton’s flagship systematic macro program gained 12.5% in the first quarter, according to eVestment, while the S&P 500 plummeted nearly 20%.” With results like this, it’s only a matter of time before other quant-based strategies enter the ESG space.
Investors who want ESG exposure via an ETF wrapper can take look at the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.
The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.
Big Data, Big Gains Ahead?
As more quantitative options enter the ESG space, another fund to get exposure to disruption via data-driven technology is Goldman Sachs Motif Data-Driven World ETF (GDAT). The fund seeks to provide investment results that closely correspond to the performance of the Motif Data-Driven World Index, which is designed to deliver exposure to companies with common equity securities listed on exchanges in certain developed markets that may benefit from the on-going rapid increase in electronically recorded data in the world and its impact on the lifecycle of data delivery and processing.
GDAT essentially provides exposure to the beneficiaries of technological innovation, regardless of sector, geography, or market capitalization. They can be used individually or collectively to help investors position their portfolios for the future.
For more market trends, visit ETF Trends.