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ESG ETFs to Keep Shining Bright on Increasing Popularity

Sweta Jaiswal, FRM
·4 min read

The coronavirus pandemic has changed Americans’ lifestyle and preferences to a large extent. The health crisis has also impacted the investing world, with market participants showing greater interest toward conscious investing, boosting demand for environmental, social and governance (ESG) funds. Not only the coronavirus pandemic but other factors like protests based on racism, geo-political tensions and changing climatic conditions are responsible for the growing popularity of sustainable investing funds, according to a Bloomberg article.

Riding on growing demand, ESG funds are witnessing record inflows in the ongoing year. In fact, ESG ETFs have already witnessed inflows of around $22 billion so far in this year, coming to around thrice the investments in 2019 (per a Bloomberg article).

The ESG funds suite continues to grow as issuers are leaving no stone unturned to gain from the growing popularity of sustainable investing. Around 17 ESG ETFs have been launched so far in 2020, in comparison to 10 in 2019, according to a Bloomberg article. Moreover, ESG funds are already on track for their best month since at least 2013 in October as these have already witnessed almost $4.1 billion in inflows, per the article mentioned above.

Increasing awareness about ESG funds among companies marked by continued technological advancement and digital revolution has been observed since the pre-pandemic era. Notably, ESG investing has also shown some resilience and continues to gain investor attention amid the coronavirus pandemic. In this regard, a recent Nuveen survey reflects that about 53% of respondents mentioned better returns as their reason for selecting responsible investing. Meanwhile, only 51% cited this year’s natural disasters as the reason for ESG investing, per a Bloomberg article.

According to Morningstar, there were 534 index funds with focus on sustainability and overseeing a combined $250 billion, as of the end of the second quarter of 2020, per a CNBC article. In fact, assets in sustainable index funds have quadrupled in the last three years in the United States and now make for 20% of the total, according to the same CNBC article.

Commenting on the growing popularity of ESG funds, Alex Bryan, Morningstar’s director of passive strategies research for North America, said that “there’s a great realization today that ESG issues are investment issues. They’re issues that can affect the bottom line, and that may not always be something that comes to bear immediately,” per a CNBC article. In fact, going by the same article, inflows into both active and passive ESG-focused funds together hit $71.1 billion during the second quarter, resulting in global assets under management crossing the $1-trillion mark for the first time.

ESG ETFs in Spotlight

ESG investing is expected to keep gaining investors’ attention. Below we discuss a few ETFs that seek to provide exposure to ESG investing:

iShares ESG Aware 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 charges 15 bps in fees (read: ETF Areas to Ride the Thematic Investing Trend in Q4).

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 charges 10 bps in fees (read: New ESG ETFs Hit Market on Growing Popularity).

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 which do not meet the U.N. global compact principles and diversity criteria. It charges 12 bps in fees.

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. 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
 
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