ESG-Themed ETF Strategies Are Beginning to Turn More Heads

As investors look for ways to diversify their investment portfolios, many are looking into socially responsible ETF strategies that also align with their own core beliefs.

“I think, probably, the biggest structural theme is actually ESG, which we’re seeing really start to accelerate as a topic, particularly in the U.S.,” Fiona Bassett, Global Co-Head Passive, Global Corporate-Head Product, DWS, said at Inside ETFs, referring to investments that focus on environmental, social and governance principles. “Obviously, in Europe, it’s been a story for a very long time, but now, we’re really starting to see this resonate with U.S. investors and a real clamor and demand for products.”

DWS also offers its own suite of ESG-related ETFs. The fund provider recently launched the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG), which was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. USSG provides exposure to large- and medium-cap U.S. companies with high environmental, social and governance (ESG) performance relative to their sector peers.

Other options include the Xtrackers MSCI EAFE ESG Leaders Equity ETF (NYSEArca: EASG), Xtrackers MSCI Emerging Markets ESG Leaders Equity ETF (NYSEArca: EMSG) and Xtrackers MSCI ACWI ex USA ESG Leaders Equity ETF (NYSEArca: ACSG). The ETFs try to provide exposure to companies with high ESG-related performance relative to their sector peers. The underlying index is based on MSCI ESG Ratings, MSCI ESG Controversies and MSCI Business Involvement Screen Research to determine index components.

Although the idea of socially responsible ETFs that focus on environmental, social and governance (ESG) is not relatively new, it’s still struggling to break into the investment mainstream.

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