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Marked by continued technological advancement and digital revolution, there has been growing awareness about environmental, social and governance (ESG) among companies. Moreover, investors appear to be bothered about the future of the environment and the effect it might have on their portfolios. This is because ignorance of environmental issues by companies may result in lawsuits, fines and damages, per the source.
Going by a 2018 survey conducted by Morgan Stanley, around 75% asset managers confirmed the adaptation of sustainable investing by their firms. This figure is up 10% from 2016 levels. In fact, the sustainable funds’ ETF gamut in 2018 gained more than $2 billion in net flows. Moreover, between 2016 and 2018, around 52 ESG ETFs were launched in the United States.
Highlighting the importance of ESG investing, Hubert Keller, head of Lombard Odier & Co.’s asset-management business, has said that sustainable investing can help in surpassing market returns. In this regard, he said, “for us, sustainability or ESG is an alpha source and it will be a major source of returns over the next two to three years and beyond.” Moreover, per Morningstar Inc., funds that consider the ESG parameters in the investment strategies outperform those that do not consider. In fact, 73% of ESG indexes have been beating their non-ESG counterparts since inception (read: Bulls to Drive S&P 500 Higher in 2020: ETFs to Tap).
ESG ETFs in Focus
Below we discuss a few ETFs that seek to provide exposure to ESG investing:
The fund tracks the investment results that correspond generally to the performance of the MSCI USA ESG Leaders Index. Notably, the MSCI USA ESG Leaders Index is comprised of large and mid-cap companies in the U.S. market and provides exposure to companies with superior ESG performance in comparison to their sector peers. The fund has 312 holdings with an AUM of $1.59 billion. The fund charges 10 bps in fees (read: 6 Most Successful ETF Launches YTD).
The fund tracks the performance of the FTSE US All Cap Choice Index comprising large, mid, and small-capitalization stocks. It does not include companies operating in adult entertainment, alcohol and tobacco, weapons, fossil fuels, gambling, and nuclear power industries. It also doesn’t consider companies not meeting U.N. global compact principles and diversity criteria. The fund has 1531 holdings with an AUM of $833.2 million. It charges 12 bps in fees (read: US Vegan Climate ETF (VEGN) to Hit US Market in September).
The fund seeks similar risk and return to the MSCI USA Extended ESG Focus Index while achieving a more sustainable outcome. The fund provides exposure to higher rated ESG companies while accessing large and mid-cap U.S. stocks. The fund has 321 holdings with an AUM of $1.41 billion. It charges 15 bps in fees (read: 6 ESG ETFs Close to or Above the $1B Asset Mark).
The underlying TIAA ESG USA Large-Cap Growth Index comprises large-cap equity securities and meet ESG criteria and exhibit overall growth style characteristics based on long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate, long-term historical EPS growth trend & long-term historical sales per share growth trend. The fund has 106 holdings with an AUM of $113.1 million. It charges 35 bps in fees.
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Are ESG ETFs the Right Choice for 2020?
Marked by continued technological advancement and digital revolution, there has been growing awareness about environmental, social and governance (ESG) among companies. Moreover, investors appear to be bothered about the future of the environment and the effect it might have on their portfolios. This is because ignorance of environmental issues by companies may result in lawsuits, fines and damages, per the source.
Going by a 2018 survey conducted by Morgan Stanley, around 75% asset managers confirmed the adaptation of sustainable investing by their firms. This figure is up 10% from 2016 levels. In fact, the sustainable funds’ ETF gamut in 2018 gained more than $2 billion in net flows. Moreover, between 2016 and 2018, around 52 ESG ETFs were launched in the United States.
Highlighting the importance of ESG investing, Hubert Keller, head of Lombard Odier & Co.’s asset-management business, has said that sustainable investing can help in surpassing market returns. In this regard, he said, “for us, sustainability or ESG is an alpha source and it will be a major source of returns over the next two to three years and beyond.” Moreover, per Morningstar Inc., funds that consider the ESG parameters in the investment strategies outperform those that do not consider. In fact, 73% of ESG indexes have been beating their non-ESG counterparts since inception (read: Bulls to Drive S&P 500 Higher in 2020: ETFs to Tap).
ESG ETFs in Focus
Below we discuss a few ETFs that seek to provide exposure to ESG investing:
Xtrackers MSCI USA ESG Leaders Equity ETF (USSG - Free Report)
The fund tracks the investment results that correspond generally to the performance of the MSCI USA ESG Leaders Index. Notably, the MSCI USA ESG Leaders Index is comprised of large and mid-cap companies in the U.S. market and provides exposure to companies with superior ESG performance in comparison to their sector peers. The fund has 312 holdings with an AUM of $1.59 billion. The fund charges 10 bps in fees (read: 6 Most Successful ETF Launches YTD).
Vanguard ESG U.S. Stock ETF (ESGV - Free Report)
The fund tracks the performance of the FTSE US All Cap Choice Index comprising large, mid, and small-capitalization stocks. It does not include companies operating in adult entertainment, alcohol and tobacco, weapons, fossil fuels, gambling, and nuclear power industries. It also doesn’t consider companies not meeting U.N. global compact principles and diversity criteria. The fund has 1531 holdings with an AUM of $833.2 million. It charges 12 bps in fees (read: US Vegan Climate ETF (VEGN) to Hit US Market in September).
iShares ESG MSCI USA ETF (ESGU - Free Report)
The fund seeks similar risk and return to the MSCI USA Extended ESG Focus Index while achieving a more sustainable outcome. The fund provides exposure to higher rated ESG companies while accessing large and mid-cap U.S. stocks. The fund has 321 holdings with an AUM of $1.41 billion. It charges 15 bps in fees (read: 6 ESG ETFs Close to or Above the $1B Asset Mark).
Nuveen ESG Large-Cap Growth ETF (NULG - Free Report)
The underlying TIAA ESG USA Large-Cap Growth Index comprises large-cap equity securities and meet ESG criteria and exhibit overall growth style characteristics based on long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate, long-term historical EPS growth trend & long-term historical sales per share growth trend. The fund has 106 holdings with an AUM of $113.1 million. It charges 35 bps in fees.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>