AAA and ESG Ratings? A 2-for-1 ETF | Smart Beta Channel

Investors looking to diversify their portfolios with a dose of fixed income and the hottest equities can look at corporate bonds as well as environmental, social and governance (ESG) investing. Undecided investors can actually get the best of both worlds via the Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF (ESCR).

The strong performance in ESG has been well-documented as the space continued to thrive even amidst the thick of the pandemic. Bonds were also on fire thanks to the Federal Reserve stepping in to shore up the debt market.

ESCR marries both ESG and corporate bonds by seeking investment results that correspond generally to the performance of the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index. The fund will invest at least 80% of its total assets, but typically far more, in instruments that comprise the underlying index.

The index generally aims to keep the broad characteristics of its parent index, the Bloomberg Barclays US Corporate Index (an investment grade corporate bond universe), resulting in a broad investment grade fixed income market exposure with ESG aspects. The “green bond” market is garnering a lot of interest in parts of the globe like Europe, but as ESG continues to gain in popularity, so will green bonds.

ESCR Chart

Will Biden’s Presidency Help ESG?

Former vice president and president-elect Joe Biden could bring his clean energy initiatives into the White House in 2021. This should be a boon for ESG investors and prospective investors looking for growth opportunities under a new administration.

The anticipation of a Biden presidency should intensify the prospects for ESG investing in 2021 and beyond.

“I think a Biden administration is going to face a divided Congress, at this point, so they’re going to have to look at ways to support ESG overall as just a smart investing move, and begin to promote actions that make it easier,” said Martin Whittaker, the CEO of JUST Capital in a Business Insider article. “For example, on corporate disclosure, I could see the SEC taking a look at ESG disclosures, standardizing that. I could see implications for corporate reporting on ESG issues, which would drive a whole effort around standardization, which is what everybody in the ESG space wants anyways. I could see those types of things to promote ESG investing, advance the field, happening.”

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