There’s no denying the strength of environmental, social and governance (ESG) investing, especially in the wake of the Covid-19 pandemic where the space is only gaining more traction among investors. This is true in all parts of the globe—especially Europe where ESG funds took in $71 billion during the second quarter.
A recent Morningstar report noted that assets under management in ESG is at a new high of over $1 trillion, which represents over 30% of all European fund sales in the second quarter.
“We think it’s in your interest to care about the things that kind of drive long-term performance of that business that you’re [a]part of,” said RBC Global Asset Management’s Jeremy Richardson in an email. “So by integrating environmental, social, and governance considerations into our assessments of every business, every investment that we’re considering making actually enables us to get a more complete, more holistic set of data to consider.”
EM Exposure in ESG
Aside from the developed markets like Europe, ESG investing is also available in emerging markets (EM) for exchange-traded fund (ETF) investors. ESG investing has been a boon to investors looking for gains amid the Covid-19 pandemic—something that emerging markets can’t attest to the past few months, but what happens when you add a dash of ESG into EM—will the former compensate for where the latter is lacking in terms of performance?
Enter the Xtrackers MSCI Emerging Markets ESG Leaders Equity ETF (EMSG)—the fund seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Emerging Markets ESG Leaders Index. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index, which is a capitalization weighted index that provides exposure to companies with ESG performance relative to their sector peers.
MSCI EM ESG Leaders Index consists of large and mid-cap companies across 24 EM countries. The Index is designed for investors seeking a broad, diversified sustainability benchmark with relatively low tracking error to the underlying equity market.
For investors who want the ESG performance, but also the EM diversification aspect in one fund, EMSG is a prime alternative as opposed to simply picking equities that give you exposure to both sectors. With the pandemic still affecting a majority of the globe, investors have to walk on proverbial eggshells when investing in EM.
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