Large- and mega-cap technology and communication services stocks are among the names leading the growth factor’s long-running advantage over the value style. Some of those stocks are also behind the out-performance of select environmental, social and governance (ESG) strategies.
The Nuveen ESG Large-Cap Growth ETF (CBOE: NULG) is one ETF that marries those concepts. ESG typically refers to the factors and issues investors consider regarding a firm’s sustainable business practices. ESG factors provide an additional way to assess and influence company or issuer performance that may enhance long-term value or help to mitigate downside risk.
NULG, which is just over three years old, follows the TIAA ESG USA Large-Cap Growth Index. That benchmark “uses a rules-based methodology that seeks to provide investment exposure that generally replicates that of traditional large-cap growth benchmarks through a portfolio of securities that adhere to predetermined ESG, controversial business involvement and low-carbon screening criteria,” according to Nuveen.
NULG allocates almost 10% of its weight to Microsoft, which is relevant because when it comes to ESG, the Dow component that shines above the rest, according to financial data company EPFR. Microsoft has been a prime beneficiary as more investors emphasize climate and social concerns.
“Like other funds in its category, NULG features a big tech overweight (almost 34%) and Microsoft apparently scores well by this ETF’s ESG criteria, given that MSFT is almost 10% of the roster and more than double the weight assigned to the second-largest holding,” according to InvestorPlace.
The $161.7 million NULG is home to about 110 stocks, indicating the combination of an investment factor and NULG can trim a portfolio’s size, but not its investment potency.
Responsible investing provides the potential for enhancing long-term performance through incorporating material ESG factors into investment decisions; addresses changing client preferences related to exclusions, best-in-class emphasis, thematic priorities, and positive impacts; increases the understanding and management of material ESG-related risk factors; and fulfills growing market requirements, including policy tools and market initiatives covering the relationship between finance and ESG issues.
“Those new to ESG investing often worry about leaving returns on the table compared to traditional equity strategies, but NULG dispels that notion: over the past year, the NuShares product is beating the S&P 500 Growth Index by more than 1,000 basis points. NULG’s qualifiers include avoiding “controversial businesses” and those with heavy carbon footprints,” notes InvestorPlace.
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