As the population begins to age, the changing face of the investor could be one that puts environmental, social and governance (ESG) investing as a top-of-mind subject for financial advisors, especially when it comes to clients who are millennials.
“We are at the beginning of what may be a very large sea change of investor behavior across the board, both retail and institutional,” said Daniel Straus, vice president, ETFs, and financial products research, with Montreal-based National Bank Financial Inc.
For millennials who didn’t understand the economic ramifications of the financial crisis over a decade ago, they’re now realizing how a crisis like a coronavirus pandemic can upend the economy quickly. Nonetheless, it’s opening up investment opportunities that are catering to millennials like ESG.
“The millennials are only going to acquire more wealth, and when they do, that alone will lead to more interest and more assets [invested in RI],” said Nicolas Piquard, vice president, portfolio manager, and options strategist with Horizons ETFs Management (Canada) Inc.
“There are a lot of products doing a lot of different things, and I think [RI] still is a bit confusing,” Piquard added.
As for the future of ESG, most market experts forecast more adoption by investors—to what extent? That’s still up in the air.
“I do think ESG will become more popular, but what that means in terms of numbers, I still don’t know,” said Pat Dunwoody, executive director of the Canadian ETF Association. “But clients are asking (about RI) now, and, from an advisor’s standpoint, it may pay to be somewhat knowledgeable in preparation for those questions.”
Investors who want ESG exposure via an ETF wrapper can take look at 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.
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