It’s been a complicated 2022 for ESG investing, with flows dropping off compared to last year’s numbers and several key SEC decisions and U.S. Department of Labor (DoL) rules looming next year for an increasingly politicized investing style. That said, investors still want exposure to ESG, tightly defined or otherwise. Those investors may want to consider an ESG dividend ETF like the ClearBridge Dividend Strategy ESG ETF (YLDE) from Franklin Templeton specialist investment manager ClearBridge.
As one of Franklin Templeton’s specialist investment managers, bringing boutique investing capabilities to its work, ClearBridge includes sustainability and ESG factors as a core part of its investment approach. That may position the firm well in an increasingly crowded ESG investing landscape.
It’s also an environment in which dividends are increasingly appealing to investors looking for consistent income to buoy them through uncertainty. They not only offer an extra metric for fundamental analysis — which can only help with Fed rate hikes and the possibility of a recession looming — but also, they reduce overall portfolio risk and can support people like retirees who need income in their portfolio.
Combining the benefits offered by dividends with ESG adds an interesting wrinkle. Like much of the stock market, this year’s volatility and interest rate hikes took their toll, but some notable ESG indices have seen recent upticks in performance. Both the MSCI ACWI ESG Focus (^MSACWIESGF) and S&P 500 ESG Index (^SPXESG) indexes are up over the one month, returning 5.1% and 1.3% respectively.
YLDE is actively managed, investing in large-cap companies which offer both attractive dividends and potential dividend growth. The ESG dividend ETF applies fundamental analysis, looking for firms with solid balance sheets and market leadership for long term investments, with an ESG screen that considers workplace policies, environmental management, strategic philanthropy, and governance.
The ETF’s annual dividend yield has outperformed both the ETF Database Category Average and the FactSet Segment Average, with its annual dividend yield at 1.09% compared to 0.95% and 0.6% respectively. It also has a 10/10 ESG score, according to VettaFi.
Having added $2 million in net inflows over the last three months, it’s also outperformed those categories based on returns, returning 4.9% over one month compared to 1.4% for the ETF Database Category Average and 3.1% for the Factset Segment Average.
There are a lot of questions for the ESG sector to answer in 2023, from how greenwashing allegations and fines will be addressed to the impact of tighter definitions of ESG and the increasing politicization of the space. Nonetheless, investors are still looking for ESG exposures, with YLDE a strategy that investors may want to keep on their radar.
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