While the markets plunged in the wake of the coronavirus outbreak, socially responsible exchange traded funds that track environmental, social and governance principles gave up less than the broader market.
According to FactSet data, almost 60% of the biggest U.S. sustainable and ESG mutual funds and exchange-traded funds lost less in market value than the S&P 500 over the first quarter, the Wall Street Journal reports.
Among the largest U.S. ESG-related ETFs, the iShares MSCI USA ESG Optimized ETF (NasdaqGM: ESGU), iShares ESG MSCI USA Leaders ETF (SUSL) and Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG) all decreased10.6% year-to-date, compared to the 11.7% decline for the S&P 500.
The Nuveen ESG Large-Cap Growth ETF (NULG) and ClearBridge Large Cap Growth ESG ETF (LRGE) were among the better performers, only dropping 4.9% and 6.0%, respectively, so far this year.
UBS global data, which covered the period from February 20 to March 30, revealed that the greener the index, the better the relative performance. For example, the socially responsible version of the MSCI World Index added 2.03 percentage points in excess return compared to the broader market over the observed period.
The socially responsible theme is also resonating with investors, even during the broad selling. According to Morningstar data, sustainable funds attracted a record $10.5 billion in inflows over the first quarter.
While these ESG investments gave up less during the worst of the selling, sustainable investment experts warned that the three-month period is a relatively short period to draw any solid conclusions about ESG investing, given the theme is considered a long-term strategy.
The underlying holdings may have helped ESG funds hold up better this time around. ESG funds are usually overweight technology stocks, which outperformed in the recent time frame and are underweight energy, which underperformed off the plunge in crude oil prices.
“Sustainable investors and ESG investors can and should expect competitive performance in all types of markets and, at times, performance is going to be advantaged by a focus on ESG considerations,” Jon Hale, Head of Sustainable Investing research at Morningstar, told the WSJ.
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