Environmental, social and governance (ESG) investing is a new big thing in the ETF industry. Issuers are increasingly coming up with products. As of October 2018, assets tied to ESG products were about $12 trillion (read: Successful ETF Launches of First Quarter).
That’s marks an increase of 38% from $8.7 trillion in 2016, per etf.com. Total assets invested sustainably in the United States grew to 26% in 2018 from 22% in 2016, according to a Global Sustainable Investing Alliance report.
Investors should note that having entered only in early March, MSCI USA ESG Leaders Equity ETF USSG has amassed about $895.7 million in assets.It marked the biggest launch of any ETF in the past 15 years. Increased client demand is leading asset managers to integrate ESG into their offerings in some way. Leading index providers have been creating investable indices for this category.
The battle of fee cuts among issuers is another thing that is driving investors toward the segment. Price sensitivity among ESG investors has become pretty prominent of late per a Wall Street Journal article. Average fees fell to 0.35% in March from 0.58% in 2014.
Notably, USSG charges only 10 bps in fees, which marked a reduction from the previous-sector low of 12 bps. Other low-cost options are Vanguard ESG U.S. Stock ETF ESGV (12 bps) and iShares ESG MSCI USA ETF ESGU (15 bps). Notably, the iShares fund debuted in December 2016 with an expense ratio 0.28%, which was cut to 0.15% in August 2017.
Against this backdrop, below we highlight a few ESG ETFs that have gained the most in the past three months. These funds have beaten the SPDR S&P 500 ETF SPY (up 13.2%).
WisdomTree China ex-State-Owned Enterprises Fund CXSE – Up 27% in past three months
The underlying WisdomTree China ex-State-Owned Enterprises Index measures the performance of Chinese stocks that are not state owned enterprises. State owned enterprises are defined as government ownership of more than 20% of outstanding shares of companies. The fund charges 32 bps in fees.
Invesco Solar ETF TAN – Up 21.5%
The underlying MAC Global Solar Energy Index comprises companies in the solar energy industry. It charges 70 bps in fees (read: Top ETF Stories of Q1).
Invesco WilderHill Clean Energy ETF PBW – Up 19.8%
The underlying WilderHill Clean Energy Index is composed of stocks that are publicly traded in the United States and engaged in the business of advancement of cleaner energy and conservation. The fund charges 70 bps in fees (read: Forget Trump Budget, 5 Green ETFs Crushing the Market).
Nuveen ESG Mid-Cap Growth ETF NUMG – Up 18.4%
The underlying TIAA ESG USA Mid-Cap Growth Index comprises equity securities issued by mid-capitalization companies listed on U.S. exchanges.It uses a rules-based methodology that provides investment exposure that generally replicates that of mid-cap growth benchmarks through a portfolio of securities that adhere to predetermined ESG, controversial business involvement and low-carbon screening criteria. The fund charges 40 bps in fees (read: ESG ETFs: Making Money While Doing Good).
Nuveen ESG Large-Cap Growth ETF NULG – Up 17.2%
The underlying TIAA ESG USA Large-Cap Growth Index comprises large-cap equity securities and meet ESG criteria & 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 charges 35 bps in fees.
Pacer Military Times Best Employers ETF VETS – Up 16.6%
The underlying Military Times Best for Vets Index comprises U.S. listed stocks of companies that have featured on the Best for Vets List for the last three consecutive years. The fund charges 60 bps in fees.
More Run Ahead?
ESG ETFs make up around 0.54% of ETF assets globally, and only 0.31% of those in the United States as of March, according to ETFGI. In a survey done in late 2018 by Newton, a subsidiary of BNY Mellon, revealed that 55% of 1000 surveyed Americans are still unaware of socially responsible investing.
However, several surveyed people who are now aware of the theme “stated they were moderately, highly or extremely interested in it after learning about it.” This clearly explains that the area is still operating below its full potential and thus has more room for growth.
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WisdomTree China ex-State-Owned Enterprises Fund (CXSE): ETF Research Reports
Invesco Solar ETF (TAN): ETF Research Reports
Invesco WilderHill Clean Energy ETF (PBW): ETF Research Reports
SPDR S&P 500 ETF (SPY): ETF Research Reports
Pacer Military Times Best Employers ETF (VETS): ETF Research Reports
XT-MS USA ESGLE (USSG): ETF Research Reports
iShares ESG MSCI USA ETF (ESGU): ETF Research Reports
Vanguard ESG U.S. Stock ETF (ESGV): ETF Research Reports
Nuveen ESG Large-Cap Growth ETF (NULG): ETF Research Reports
Nuveen ESG Mid-Cap Growth ETF (NUMG): ETF Research Reports
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