Advisors and investors are expected to continue considering exchange traded funds adhering to environmental, social and governance (ESG) investing principles. Likewise, ETF issuers are likely to continue introducing ESG products.
An established member of the ESG ETF space to consider is the Oppenheimer ESG Revenue ETF (NYSEArca: ESGL). ESG investments try to deliver returns while monitoring the long-term impact of a company’s business practices on society, the environment and performance of the business.
Most ESG funds simply employ virtuous investing principles, but Oppenheimer goes further by employing its revenue-weighted methodology, which can help investors avoid overvalued sectors and stocks.
ESGL “provides access to the top 50% of securities in the S&P 500 Index by ESG score, excluding those with a detrimental score for controversies, and is weighted by top line revenue instead of market capitalization,” according to Oppenheimer.
ESGL, which debuted in October 2016, holds 234 stocks and has over $25 million in assets under management. The ETF tracks the OFI Revenue Weighted ESG Index.
“At the end of third quarter, ESGL’s holdings had a weighted average market value of almost $99.1 billion, underscoring the fund’s large-cap focus. More importantly, ESGL has rapidly earned Morningstar’s 5 Globes rating, that research firm’s highest rating for ESG and sustainable investments,” reports Investopedia.
The index’s rules-based methodology tries to improve their performance return through weighting each security in the index by top line revenue. Components are then rebalanced every quarter to keep the Revenue Weighted Indices in line with the companies’ most recently reported revenue levels.
Academic research has revealed that strong governance mechanisms have helped diminish default risk and lower bond yields. The ESG principle are more of a way of living or conducting business that correspond with a firm’s core values. Many companies have defined their corporate social responsibility to account for their impact on the environment and social welfare even if there is no legal requirement.
“In additional to its ESG foundation, ESGL’s revenue-weighted methodology can help investors avoid overvalued stocks while providing exposure to undervalued names at a time when the value factor is widely expected to rebound in 2018,” according to Investopedia.
For more on smart beta ETFs, visit our Smart Beta Channel.