Data confirm advisors and investors remain enthusiastic about the prospects for environmental, social and governance (ESG) ETFs, a theme that bodes for products including the FlexShares STOXX US ESG Impact Index Fund (CBOE: ESG) and its global counterpart, the FlexShares STOXX Global ESG Impact Index Fund (CBOE: ESGG).
“Environmental, Social, and Governance (ESG) ETFs and ETPs listed globally gathered net inflows of US$7.54 billion during February, bringing year-to-date net inflows to US$14.30 billion which is higher than the US$2.40 billion gathered at this point last year,” said Deborah Fuhr, managing partner, founder, and owner of ETFGI, in a report released last Friday.
ESGG is based on the STOXX Global ESG Impact Index, which screens companies scoring better with respect to a select set of ESG key performance indicators (KPIs), with the bottom 50% of such companies based on their ESG KPI scores excluded from the Index, as are companies that do not adhere to the UN Global Compact principles, are involved in controversial weapons or are coal miners.
Good Times For ESG
While ESG still has some critics, some of the ETFs in this category have performed less poorly than broader benchmarks during the March meltdown.
ESG’s index is an optimized index designed to provide broad market exposure that is tilted toward U.S. companies that score better with respect to a small set of ESG characteristics and to provide the potential for attractive risk-adjusted performance relative to the STOXX® USA 900 Index, as determined by the index provider. This month, ESG’s decline is in line with that of the S&P 500.
“At the end of February, the S&P 500 was down 8.2% as coronavirus cases continued to spread and the potential economic impact weighed on investors and the markets,” said Fuhr. “Outside the U.S., the S&P Developed ex-U.S. BMI declined by nearly 9.0%. The S&P Emerging BMI lost 5.1% during the month. Global equities as measured by the S&P Global BMI ended down 8.1% with 49 of 50 included country indices down, while China gained 0.9%.”
As Fuhr notes, global ESG ETF assets rose almost 5% from January to February.
“The Global ESG ETF/ETP industry had 293 ETFs/ETPs, with 805 listings, assets of $68 Bn, from 75 providers listed on 30 exchanges in 58 countries at the end of February,” she said. “Following net inflows of $7.54 billion and market moves during the month, assets invested in ESG ETFs/ETPs listed globally increased by 4.93%, from $64.79 billion at the end of January 2020 to a record $67.99 billion.”
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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.