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Inside the New S&P 500 ESG ETF (RSPE) Launched by Invesco

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The environmental, social and governance (“ESG”) investing trend has remained a hot favorite among investors since the pre-outbreak period. Between 2018 and 2020, total U.S.-domiciled sustainably invested assets under management, both institutional and  retail, skyrocketed 42% to $17.1 trillion, per a CNBC article. But the trend has gained increased momentum lately thanks to the Biden administration in the United States, rise in global awareness for cleaner energy and increased investors’ demand.

To meet this hype, Invesco (IVZ - Free Report) launched an ESG version of its famous S&P 500 Equal Weight ETF (RSP - Free Report) . The new fund is namedInvesco ESG S&P 500 Equal Weight ETF RSPE.

Inside RSPE

The Invesco ESG S&P 500 Equal Weight ETF is based on the S&P 500 Equal Weight ESG Leaders Select Index. The fund will invest at least 90% of its total assets in securities that comprise the Index. The Index is designed to measure the equal weighted performance of securities included in the S&P 500 Equal Weight Index that also meet ESG criteria, while maintaining similar overall industry group weights as the S&P 500 Equal Weight Index. Each security is assigned an “ESG score” that looks to identify companies well-equipped to recognize and respond to emerging sustainability opportunities and challenges in the global market.

Companies provide up to 1,000 data points in response to the questionnaires which is deployed to score each company’s performance in relation to each specific ESG subject. If a company denies to actively participate in the assessment, it may be evaluated based on publicly available information. Companies are ranked from highest to lowest according to their ESG scores, and the top 40% of constituents within each GICS S&P 500 industry group generally get a place in the Index.

Information Technology (16.97%), Industrials (16.48%), Consumer Discretionary (14.05%), Financials (13.64%) and Healthcare (12.1%) have a double-digit weight in RSPE. Invesco ESG S&P 500 Equal Weight ETF charges 20 bps in fees. No stock accounts for more than 0.76% of The Invesco ESG S&P 500 Equal Weight ETF with Dollar Tree, Advanced Micro Devices and Qualcomm taking the top three spots.

How Does the Fund Fit in a Portfolio?

ESG ETF and exchange-traded product launches around the globe hauled in a record $119 billion in net inflows in the first nine months of this year, according to research firm ETFGI, as quoted on CNBC. Invesco’s head of ETFs and indexed strategies, Anna Paglia, told CNBC’s “ETF Edge” that U.S. ESG products could see the same massive growth as in Europe, where sustainable ETFs and mutual funds now make up 81% of new flows.

U.S. President Joe Biden to be known as promoting clean energy. Biden wants the United States to achieve a 100% clean energy economy and net-zero emissions, no later than 2050. His latest infrastructure bill promotes and invests substantially in electric vehicle (read: Will ESG ETFs Flourish Under a Biden Presidency? Let's Explore).

Renewables are forecast to make up about 38% of U.S. electricity generation by 2050, with solar and wind, respectively, projected to make up about 46% and 33% of electricity generated by renewables. Such moves and measures indicate global response toward climate change and focus on ESG investing. 

Electricity consumption produced through clean energy technology is projected to more than triple from less than 10% of global consumption at present, to at least one-third of global consumption by 2035, per the Virtus’ factsheet. Emerging countries’ pledge for being carbon-neutral in the COP-26 Glasgow is another positive for the space.

Competition

The space is teeming with competition. Still, we expect RSPE will see success as it is a counterpart of Invesco’s another winning product RSP. The new ESG ETF’s expense ratio is also moderate given the fact that another popular fund in this area iShares ESG Aware MSCI EAFE ETF (ESGD - Free Report) charges 20 bps in fees.


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