If the current market were a popularity contest, environmental, social, and governance (ESG) investing would be crowned the winner, especially when it comes to the growing number of millennials and Generation Z investors.
“As it turns out, ESG investing outperforms many other forms of investing in the stock market,” a Nasdaq article noted. “Among U.S.-based, ESG-focused index funds surveyed in Q1 2020, 10 out of 12 outperformed the S&P 500 according to MarketWatch, and 11 out of 11 non-U.S. ESG-focused funds beat their respective international benchmarks.”
Furthermore, it’s not only that ESG is able to address the initiatives of the investors they hold dear to their heart, but the space is also outperforming relative to the rest of the market. Even Covid-19 hasn’t been able to successfully slow down the momentum of ESG investing.
Given that, the question remains: what’s driving these gains for ESG?
“Popularity is one reason,” the article added. “Studies show that younger (including Millennial and Gen Z) investors tend to favor investments in companies that are good global citizens. Investors who came of age in 2000 or later are said to be “three times more likely” than investors at large to agree that business must ‘serve communities and society” reports MarketingDive, and to favor a company associated ‘with a social cause.’”
The sheer size of the demographic catering to ESG will only continue to fuel the space moving forward.
“When you consider that more than 83 million of America’s 328 million citizens hail from the millennial cohort alone — more than one person in four — that’s a huge number of investors putting their money where their values are,” the article said.
Getting ESG ETF Exposure
As opposed to picking individual companies with ESG initiatives, investors who want ESG exposure can do so via an ETF wrapper like the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE 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. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.
An additional fund to look at is the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG), which has been a popular play for investors seeking exposure to socially responsible investments. USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high ESG performance relative to their sector peers.
For more market trends, visit ETF Trends.