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ESG ETFs to Gain as Goldman Sees Rising Popularity

Sweta Jaiswal, FRM

Increasing awareness about environmental, social and governance (ESG) among companies marked by continued technological advancement and digital revolution has been observed since the pre-pandemic era. It is being believed that the coronavirus outbreak may increase investor inclination toward ESG investing as it may change society’s values.

ESG Investing Gains Popularity Amid Research Houses

In a recent note to its clients, Goldman Sachs commented that “prior to this crisis there was a meaningful and increasing focus on ESG investing and it is likely that this focus will only increase following the coronavirus” (per a CNBC article). Going on, JPMorgan also commented that “we see the Covid-19 crisis accelerating the trend to ESG investment.” Moreover, UBS also highlighted ESG investing in a recent note to clients saying that “we expect increased investor focus on ESG considerations after COVID-19, with particular demand for greater corporate transparency and stakeholder accountability” (per a CNBC article).

ESG Investing Shows Resilience

ESG investing has shown some resilience and continues to gain investor attention during the coronavirus pandemic. Going by Morningstar Direct’s data, investors had spent at least $12.2 billion on ESG funds in the first four months of 2020, per The Wall Street Journal report. The report also highlights the resilience of ESG funds’ performance, which mostly generated better-than-average returns in comparison to the broader S&P 500 index. Going by the report, more than 70% ESG funds across all the asset classes generated greater returns than their counterparts through the first four months of 2020.

Per FactSet data, iShares ESG MSCI USA ETF (ESGU) got the maximum attention by managing roughly $555 million in new investments over the last month. It was followed by Xtrackers MSCI USA ESG Leaders Equity ETF (USSG) and the iShares ESG MSCI USA Leaders ETF SUSL that attracted around $503 million and $493 million in new capital inflows (per a CNBC article).

ESG ETFs in Focus

Below we discuss a few ETFs that seek to provide exposure to ESG investing:

iShares ESG MSCI USA ETF ESGU

The fund seeks similar risk and return to the MSCI USA Extended ESG Focus Index, while achieving more sustainable outcome. The fund provides exposure to higher rated ESG companies while accessing large and mid-cap U.S. stocks. The fund has 346 holdings with AUM of $7.03 billion. It charges 15 bps in fees (read: ESG ETFs to Gain on Rising Popularity Amid the Coronavirus Crisis).

Xtrackers MSCI USA ESG Leaders Equity ETF USSG      

The fund tracks investment results that correspond generally to the performance of the MSCI USA ESG Leaders Index. Notably, the MSCI USA ESG Leaders Index provides exposure to companies with high ESG performance relative to their sector peers. The fund has 292 holdings, with AUM of $2.38 billion. The fund charges 10 bps in fees (read: Ride the Thematic Investing Trend With These ETFs).

Vanguard ESG U.S. Stock ETF ESGV

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 1503 holdings, with AUM of $1.56 billion. It charges 12 bps in fees (read: Here's Why ESG ETFs Are Hot Amid Pandemic).

Nuveen ESG Large-Cap Growth ETF NULG

The underlying TIAA ESG USA Large-Cap Growth Index comprises large-cap equity securities and meets ESG criteria and exhibits 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 and long-term historical sales per share growth trend. The fund has 77 holdings, with AUM of $226.4 million. It charges 35 bps in fees.

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Nuveen ESG LargeCap Growth ETF (NULG): ETF Research Reports
 
iShares ESG MSCI USA ETF (ESGU): ETF Research Reports
 
Vanguard ESG U.S. Stock ETF (ESGV): ETF Research Reports
 
Xtrackers MSCI USA ESG Leaders Equity ETF (USSG): ETF Research Reports
 
iShares ESG MSCI USA Leaders ETF (SUSL): ETF Research Reports
 
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