Environmental, social and governance (ESG) investing principles have permeated the world of exchange traded funds in a big way, but ESG investing can be married with other concepts, including smart beta strategies.
Just look at the Oppenheimer ESG Revenue ETF (NYSEArca: ESGL). ESGL targets broad U.S. large-caps through the S&P 500 but screens through Sustainalyics’ proprietary scoring system that focuses on those with positive ESG attributes and employs a revenue-weighted methodology.
ESGL, which is about 14 months old, tracks the OFI Revenue Weighted ESG Index, which tries to outperform the S&P 500 by focusing on companies with strong ESG practices and re-weights those based on revenue earned. Sustainalytics utilizes a proprietary scoring system and assigns an overall composite ESG score to each company.
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.
ESGL holds 232 stocks. The ETF’s largest sector allocation is an almost 16% weight to consumer discretionary names. The industrial and technology sectors combine for over 28% of the fund’s weight. Consumer staples and healthcare names combine for 26.7%.
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.
ESGL is up more than 13% year-to-date and currently resides near all-time highs. The fund has a dividend yield of almost 2%.
OppenheimerFunds also offers a suite of revenue-weighted ETFs that specifically focus on companies with high revenues, including the Oppenheimer Large Cap Revenue ETF (NYSEArca: RWL), Oppenheimer Mid Cap Revenue ETF (NYSEArca: RWK), Oppenheimer Small Cap Revenue ETF (NYSEArca: RWJ), Oppenheimer Ultra Dividend Revenue ETF (NYSEArca: RDIV), Oppenheimer Financials Sector Revenue ETF (NYSEArca: RWW), and Oppenheimer Global ESG Revenue ETF (NYSEArca: ESGF).
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