There’s a perception that ESG ETFs are less relevant or able to add value than in the past. The reality is that some ESG ETF are not only gathering assets, but are performing well too. Let’s dive into one example.
This week, VettaFi joined executives from DWS and S&P Dow Jones Indices to celebrate the Xtrackers S&P 500 ESG ETF (SNPE). SNPE is now more than five years old, with a strong track record and strong investor interest. The $1.7 billion ETF added $435 million of new money year-to-date through December 13. That is certainly a reason to celebrate.
SNPE tracks a broad-based, market-cap-weighted index. That S&P index is designed to measure the performance of securities meeting sustainability and other criteria, while maintaining similar overall industry group weights as the S&P 500.
A Strong Index Track Record
The S&P ESG Index had a ten-year annualized total return of 14.1% as of November. This was stronger than the 13.4% for the S&P 500 Index. On a five- and three-year basis, the ESG index was approximately 130 basis points and 40 basis points stronger.
The modest relative success occurred in eight of the last ten full calendar years. However, in the first 11 months of 2024, the ESG index was approximately 30 basis points behind. Meanwhile, on a risk-adjusted basis, the ESG index had stronger returns over the three-, five-, and ten-year periods.
What Is and Is Not Inside SNPE?
While designed to look relatively similar to the S&P 500 index, there are notable differences. For example, SNPE has historically owned around 300 stocks. Currently it owns 317 holdings. S&P Dow Jones excludes stocks from the ESG index based on certain criteria. Those include companies involved in military contracting, tobacco production and thermal coal.
In addition, stocks are not included in the index for failure to end up in the top 75% of their industry group based on environmental, social and governance assessments. This relative criteria helps explain why some of the mega companies are inside and others are not.
Looking at the top-10 constituents, only six of the ten from the S&P 500 index are in the same place in SNPE. The ESG ETF’s top 10 does not include Amazon.com, Berkshire Hathaway, Broadcom and Meta Platforms. Meanwhile, as of quarter end, stakes in Apple, Eli Lilly, Exxon Mobil, Microsoft, and UnitedHealth Group were larger in the DWS ETF.
A Suite of ESG ETFs
DWS has a broad suite of ESG and climate-related ETFs for advisors and investors to consider. The Xtrackers MSCI USA Climate Action Equity ETF (USCA) and the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG) are two others with more than $1 billion in assets.
While the approach may not appeal to all, for those focused on sustainability, SNPE is a product worthy of attention and additional due diligence.
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