Environmental, social and governance (ESG) exchange traded funds are in the limelight in significant fashion this year. As more advisors and investors realize the benefits of these products, including sturdy performance, ETS such as the FlexShares STOXX US ESG Impact Index Fund (CBOE: ESG) and the FlexShares STOXX Global ESG Impact Index Fund (CBOE: ESGG) stand to benefit.
ESG seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the STOXX® USA ESG Impact Index. The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to ESG characteristics relative to the STOXX® USA 900 Index, a float-adjusted market-capitalization weighted index of U.S.- incorporated companies. Under normal circumstances, the fund will invest at least 80% of its total assets in the securities of the underlying index.
“More studies on ESG funds have found overperformance than underperformance, although ESG funds haven’t been around long enough to say anything conclusive. ESG funds might choose to shun one or two value sectors, such as Big Oil, but that still leaves many other value sectors available for ripe picking,” according to the Wall Street Journal.
ESG’s Recent Growth Spurt
ESGG seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the STOXX® Global ESG Impact Index. The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to environmental, social, and governance characteristics relative to the STOXX® Global 1800 Index, a float-adjusted market-capitalization weighted index of companies incorporated in the U.S. or in developed international markets. The fund will invest at least 80% of its total assets in the securities of the index and in ADRs and GDRs based on the securities in the index.
Integral to the success of ESG funds going forward is end users realizing the concept of ESG ratings is a fluid, evolving concept.
“Not all ESG raters or fund managers agree on what constitutes a positive ESG investment, true. But just because the reviews on Yelp and Tripadvisor may not agree what restaurants are the best, that does not render them useless. ESG “reviews” similarly help ensure that managers maintain robust ESG strategies and reporting,” according to the Journal.
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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.