Environmental, social, and governance (ESG) exchange traded funds are scuffling this year due in large part to the erosion in growth stocks — a segment that many ESG funds overweight.
Still, there are encouraging signs for ESG ETFs such as the Invesco ESG S&P 500 Equal Weight ETF (RSPE). Among those green shoots are data points indicating that despite broad-based equity market weakness, investors continue allocating capital to ESG ETFs.
Last month, globally listed ESG exchange traded products hauled in $6.83 billion in new assets, bringing year-to-date inflows to the category to $31.45 billion. While that’s less than half the figure seen in the comparable period in 2021, it is a sign that despite a rocky climate for stocks, investors remain enthusiastic about the long-term prospects for ESG.
“The S&P 500 decreased by 8.72% in April and is down 12.92% in the first 4 months of 2022. Developed markets excluding the US decreased by 6.71% in April. Emerging markets decreased by 5.40% during April and are down by 11.56% in the first 4 months of 2022,” noted Deborah Fuhr, ETFGI founder, in a recent report.
Those data points underscore the notion that on a regional basis, there’s nowhere to hide this year for equity investors. However, those facts also highlight the point that even against a tumultuous backdrop, some market participants are looking to embrace ESG funds.
That’s potentially good news for RSPE because the Invesco fund debuted last November, making it one of the newer large-cap domestic equity ETFs on the scene. A point in RSPE’s favor is that the rookie ESG ETF, like many equal-weight funds, has a value tilt. About 35.5% of the fund’s 186 components are classified as value names.
By tracking the S&P 500 Equal Weight ESG Leaders Select Index, RSPE presents investors with exactly what’s needed in today’s ESG landscape: an easy-to-understand approach. Going forward, that could be a major selling point for the ETF.
“Confusion persists around what constitutes an ESG fund. According to PRI, a UN-supported initiative which seeks to understand the investment implications of ESG issues, 56% of adopters believe there is a lack of clarity in ESG definitions,” concluded ETFGI.
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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.