Exchange traded funds adhering to environmental, social and governance (ESG) investing principles are expected to see rapid growth in the coming years, but some of the group’s established options remain compelling for socially-conscious investors.
Consider the $696.4 million iShares MSCI USA ESG Select ETF (NYSEARCA: SUSA). Sustainable investments are not just a gimmick. A 2015 report by Morgan Stanley found that “investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.”
Many advisors and investors are concerned about fully implementing their values within portfolios, but there may be a more appealing way to start down the environmental, social and governance, or ESG, path through exchange traded funds. SUSA tracks the MSCI USA ESG Select Index.
“MSCI maintains the index by screening for the predictable — protecting the environment, other social concerns and problems with corporate governance — but it digs much further into other areas that can put companies and their share prices at risk,” reports MarketWatch. “These include accounting policies, qualifications of board members and dozens of other factors.”
SUSA holds 99 stocks and the ETF has a three-year standard deviation of 10.5%. Familiar names in the fund include Microsoft (NASDAQ: MSFT), 3M (NYSE: MMM) and Apple Inc. (NASDAQ: AAPL).
The socially responsible investing theme covers a wide range of investments. For instance, some funds shun the defense or fossil fuel industries while others exclude gun makers, alcohol or tobacco producers, or companies deemed unfriendly to their workers, shareholders or the environment.
A number of asset managers and asset owners already incorporate environmental, social and governance factors, and as the popularity of exchange traded funds continue to grow, more may turn to ESG-related ETF options to easily and efficiently access this targeted segment.
SUSA allocates 27.6% of its weight to technology stocks, more than double its second-largest sector weight. The industrial and healthcare sectors combine for a quarter of the ETF’s roster. SUSA, which charges 0.5% per year, is up 6.3% year-to-date.
For more information on socially responsible investment strategies, visit our socially responsible ETFs category.