One issue facing all new exchange traded funds is timing. In other words, a key issue is whether the new ETF in question is presenting investors with an investment objective that’s relevant not only at the time at which it comes to market, but beyond.
Among the 2021 crop of rookie ETFs, the Invesco ESG S&P Equal Weight Fund (RSPE) is an example of a fund that’s relevant right here, right now, and one that has attractive long-term growth prospects.
RSPE launched last November at the tail end of a record year for inflows to environmental, social, and governance (ESG). With some market observers expecting more of the same this year, RSPE checks the good timing box, but there’s more to the story because there’s still ample runway for growth ahead for ESG ETFs in general.
One of the expected catalysts for growth is the fact that there are currently plenty of investors who are expressing interest in ESG funds, but they’ve yet to commit capital to the asset class. As those market participants get off the fence and join the ESG ETF party, products such as RSPE could benefit.
“Out of those who are not currently engaging in sustainable investing, 29% believe that company-level ESG policies should be a ‘fairly important’ or ‘very important’ factor when people select investments,” writes Morningstar analyst Samantha Lamas. “These individuals are in the do-should gap–they believe ESG factors are important but have yet to incorporate them in their own investing decisions.”
Another factor that new ETFs should have in their favor is an avenue for standing out relative to comparable, established competitors. RSPE has that. Not only does the fund employ some of the exclusionary tactics found in old guard ESG ETFs, it also adds a data-rich layer that scores components based on select ESG criteria.
Additionally, RSPE further refreshes the ESG ETF proposition by being an equal-weight fund in a category still dominated by cap-weighted products, some of which are heavily allocated to a small number of stocks, have sector concentration issues, or both.
Add it all up and RSPE, which holds 183 stocks, could be well-positioned for the next wave of ESG ETF growth.
“Our research finds that there are plenty more sustainable investors out there waiting to be brought into the fold. It’s just a matter of identifying them and removing whatever obstacle that’s keeping them from doing so,” adds Lamas.
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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.