From the perspectives of adoption and inflows, environmental, social, and governance (ESG) exchange traded funds have considerable momentum.
Still, the space is ripe for innovation. Some of that arrived last month with the debut of the Invesco ESG S&P 500 Equal Weight ETF (RSPE). If RSPE’s name sounds familiar, it’s because the rookie ETF is the ESG counterpart to the Invesco S&P 500 Equal Weight ETF (RSP), the largest equal-weight ETF on the market.
Impressive lineage aside, RSPE arrives at a time when advisors and investors are expressing plenty of enthusiasm for ESG funds. Moreover, some market observers expect that this enthusiasm isn’t going anywhere anytime soon.
“Global ESG assets are on track to exceed $53 trillion by 2025, according to Bloomberg Intelligence, representing more than a third of the $140.5 trillion in projected total assets under management,” notes deVere Group.
Integral to the RSPE thesis is the fact that the fund represents ESG evolution without stretching into unfamiliar concepts investors might find off-putting.
“Previously, ESG investments were often considered a ‘quirk’ or ‘nice to have,’” said deVere Group CEO Nigel Green. “But now we believe that they should be a part of everyone’s investment portfolio for several key reasons.”
RSPE also offers the diversification investors are looking for with ESG and equal-weight strategies. The fund holds 185 stocks, none of which exceed a weight of 0.82%. Additionally, RSPE doesn’t rely on some of the sector overweights that are found in so many traditional ESG ETFs. For example, technology stocks account for just 17.34% of the fund’s weight, though that is RSPE’s largest sector allocation.
Industrial and consumer discretionary stocks combine for 30% of the RSPE portfolio, and the new ETF features no exposure to energy stocks.
Owing to its age, it’s not yet clear how RSPE will stack up relative to other broad market strategies, but the encouraging sign is that companies with impressive ESG credentials are topping those that don’t score well based on ESG in recent years. That’s further confirmation that RSPE could be a well-timed addition to the ESG ETF landscape.
“ESG represents a revolution of investment strategy itself. A seismic shift has occurred in corporate behavior. How firms approach ESG factors and the value they place on them compared to other considerations has already changed forever. The ESG themes are already embedded in the global economy as this is only set to grow in the years to come – and, of course, investors should embrace the concept of having early advantage,” adds Green.
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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.