The ETF industry has been working on innovations greatly, with a smarter approach and new concepts coming online frequently. In the whole bunch of newer themes, socially relevant funds are in vogue. Companies that focus heavily on environmental, social and governance (ESG) practices are being desired by investors, if we go by BlackRock (read: Guide to Socially Responsible ETFs).
Sustainable investing has grown into a $22.8 trillion global industry with 84% of asset owners currently pondering on or already pursuing sustainable investments, per a recent report study by the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Investment Management Inc.
More than four-fifths of professional investors see ESG-based ETFs grow bigger over the next five years, per the research from State Street Global Advisors (SSGA) (read: Vanguard Plans to Foray Into ESG ETF Space).
Apart from the social standpoint, this investing practice offers substantial gains to investors. This is because lesser focus on environmental issues by the companies may result in lawsuits, fines and damages, per the source.
Investors should note that the MSCI Emerging Markets Leaders index, which gives exposure to 417 companies that score high on ESG, has been outdoing the leading MSCI Emerging Markets benchmark since the 2008-09 financial crisis, as noted by Financial Times.
An article published on The Wall Street Journal pointed out that the rise of socially responsible funds has been most prominent in the last three years from when the Obama government started easing off. In fact, unlike many style-based funds, which have been shut down, the number of sustainable funds have seen quite an increase (read: Here's Why ESG ETFs Exceled in Last Three Years).
Inside ESG ETFs’ Outperformance
Investors' growing appetite for ESG is finally working for them too. In past three months (Jul 23, 2018), several ESG ETFs beat the S&P 500 (up about 5.6%). Investors should note that past three months were all about trade war tensions, mainly between the United States and China and between the United States and several of its key trading partners on a broader sense.
So, in a way, this is an achievement to ESG-based ETFs having weathered the trade war storm. Below we highlight some of the outperforming ESG funds in the three-month period.
ClearBridge Large Cap Growth ESG ETF (LRGE - Free Report) – Up 13.6%
This actively managed ETF seeks to achieve long-term capital appreciation through investments in large-capitalization companies with positive ESG attributes that have the potential for high future earnings growth.
Global X Founder-Run Companies ETF (BOSS - Free Report) – Up 10.2%
The underlying Solactive U.S. Founder-Run Companies Index intends to measure the performance primarily of U.S. Large-Cap and Mid-Cap companies currently led by a CEO who founded the company.
Inspire Small/Mid Cap Impact ETF (ISMD - Free Report) – Up 9.5%
The underlying Inspire Small/Mid Cap Impact Equal Weight Index tracks the stock performance of 500 of the most inspiring small and mid-cap companies in the United States. The portfolio conforms to biblical values.
NuShares ESG Small-Cap ETF (NUSC) – Up 9.00%
The underlying TIAA ESG USA Small-Cap Index comprises equity securities issued by small- capitalization companies accompanied with ESG criteria.
VanEck Vectors Environmental Services ETF (EVX - Free Report) – Up 6.7%
The underlying Environmental Services Index tracks the overall performance of companies involved in waste collection, transfer and disposal services, recycling services, soil remediation, wastewater management and environmental consulting services.
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