The Xtrackers S&P 500 ESG ETF (SNPE), which debuted in June, is the first ETF to track the S&P 500 ESG Index, the environmental, social and governance (ESG) derivative of the widely followed S&P 500 Index.
Cementing the notion that more investors are embracing ESG ETFs, SNPE already has about $98 million in assets under management, an impressive amount for a fund that’s just over four months old and enough to make SNPE one of this year’s most successful new ETFs.
The Underlying Index seeks to target 75% of the float market capitalization of each Global Industry Classification Standard Industry Group within the S&P 500 Index, using an ESG score as the defining characteristic, according to the fund’s prospectus.
All constituents of the S&P 500 Index are eligible to be included by the underlying index except if they are …
• Involved in the production or sales of tobacco,
• Engaged in the business of controversial weapons,
• Fall within the bottom 5% of the United Nations Global Compact score ranking, or
• Fall within the lowest 25% of ESG scores from each GICS Industry Group.
Sizing Up SNPE
Some data points indicate SNPE can be a suitable alternative for investors seeking traditional long-term, large-cap equity exposure.
“The annualized volatility of the S&P 500 ESG Index was slightly lower than the S&P 500, at 14.63% and 14.86%, respectively. The annualized return was 0.02% higher for the S&P 500 ESG Index than the S&P 500,” according to S&P Dow Jones Indices.
ESG investing has become a large and fast-growing major market segment, according to a DWS note. Over one-quarter of assets under management globally, or over $22 trillion, are now allocated to investments with ESG factors that can materially affect a company’s performance and market value. ESG integration, or the systematic and explicit inclusion of ESG factors in financial analysis, has been steadily expanding at 17% per year.
“While the S&P 500 ESG Index does exclude some sin stocks, it also takes a more holistic view of ESG and removes the worst ESG companies, as measured by the S&P DJI ESG Scores,” notes S&P Dow Jones Indices. “As the returns of the S&P 500 ESG Index are so close to those of the S&P 500, plus the opportunity to receive all the ESG benefits, why not choose the S&P 500 ESG Index over its market-cap-weighted parent?”
For more information on index-based ETFs, visit our indexing category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.