With any ETF, structure matters, and that’s particularly true for advisors and investors considering environmental, social and governance (ESG) funds. To that end, some users can find comfort with ESG funds that track derivatives of familiar benchmarks.
That’s the case with the Xtrackers S&P 500 ESG ETF (SNPE). One of 2019’s most successful new ETFs, SNPE is among the first ETFs to track the S&P 500 ESG Index, the environmental, social and governance derivative of the widely followed S&P 500 Index. The familiarity offered by SNPE could prove potent at a time of rapid growth in the ESG arena.
“However, in 2019, assets in ESG funds suddenly spiked. In ETFs alone, assets increased from USD 22.1 to USD 56.8 billion,” said S&P Dow Jones Indices in a recent note. “What brought this about? The launch of popular new indices, like the S&P 500 ESG Index, which was built to provide risk/return characteristics similar to those of their underlying benchmarks.”
SNPE ETF Year-to-Date Performance Chart via Ycharts.com
The ESG theme is also not some fringe or niche investment that is relegated to a satellite portfolio position. Over one-quarter of assets under management globally, or more than $22 trillion, are now being invested according to the premise that environmental, social and governance factors can materially affect a company’s performance and market value. ESG integration has been growing at 17% per year.
Home to nearly $63 million in assets under management and 312 stocks, SNPE has an annual fee of just 0.11%, or $11 on a $10,000 investment, making it one of the most cost-effective options in the ESG category.
While history doesn’t always repeat, it often rhymes and that could be good news for some ESG funds using S&P indexes, include SNPE.
“The ESG versions of the S&P 500, S&P Europe 350®, S&P Global LargeMidCap, and S&P Developed LargeMidCap indices all performed better than their beta counterparts,” according to S&P Dow Jones Indices.
DWS has found 90% of results demonstrate that prudent sustainability practices have a positive or neutral influence on investment performance, 88% of companies with robust sustainability practices demonstrate better operational performance and cashflows, nine of the GICS Sectors saw stocks with superior ESG scores signal lower earnings volatility, and companies with high ESG ratings tend to have a lower cost of capital.
“Will the S&P 500 ESG Index continues to track and even improve on the performance of the S&P 500 in the future?,” ponders S&P Dow Jones. “Common sense and our lawyers prevent us from speculating, but it appears that the ESG indices are passing major tests—their first year live, their first rebalance, and their first bout with market volatility—even better than expected.”
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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.