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State Street Debuts S&P 500 ESG ETF Amid High ESG Fund Demand

The coronavirus outbreak has directed attention toward conscious investing, boosting demand for environmental, social and governance (ESG) funds. Going by Morningstar Direct’s data, investors spent at least $12.2 billion on ESG funds in the first four months of 2020, per The Wall Street Journal report.

Going on, according to Morningstar, 23 new ESG funds have been launched in 2020 and a record number of launches are expected this year (per a CNBC article). According to the same article, net inflows in U.S. sustainable funds in 2020 are expected to surpass the record net flows in 2019, which were four times the previous high.

Keeping up with the growing popularity of ESG investing, State Street Corporation has launched SPDR S&P 500 ESG ETF EFIV. In this regard, according to the sources Sue Thompson, Head of SPDR Americas Distribution at State Street Global Advisors, said that “as ESG factor-based strategies pivot from check the box components to must have ingredients in every portfolio, State Street remains committed to providing a broader range of ESG solutions.”

EFIV in a Nutshell

EFIV aims at tracking the performance of the S&P 500 ESG Index. It is basically is designed to track S&P 500 firms meeting certain sustainability criteria (parameters related to environmental, social and governance factors) while keeping overall industry group weights similar to the S&P 500 Index.

Comprising 310 holdings, Information Technology (28.2%) followed by Health Care (14.2%) and Communication Services (12.2%) form the top three sectors with the highest weight within EFIV. The fund charges a fee of 10 basis points a year.

EFIV’s top three holdings are Microsoft Corporation, Apple Inc. and Amazon.com Inc., with 7.55%, 7.52% and 6.06% exposure, respectively.

What Makes EFVI an Attractive Pick?

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 shown some resilience and continues to gain investor attention amid the coronavirus pandemic. The Wall Street Journal’s report also highlights the resilience of ESG funds, 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 asset classes generated greater returns than their counterparts through the first four months of 2020. According to S&P Global Market Intelligence, 14 out of 17 ESG-focused ETFs and funds surpassed the S&P 500 from Jan 1 to May 15 (per a CNBC article). Furthermore, Bank of America Merrill Lynch research report states that ESG stocks have outperformed the S&P 500 by five percentage points between Feb 19 and Mar 25, marking the sharpest period of index decline. Moreover, a Wall Road Journal evaluation of ESG fairness funds found that around 150 of about 200 funds surpassed the common return of a fund’s broader class, per a Wall Street Journal report.

ETF Competition

The fund faces tough competition owing to its focus on U.S. companies with good ESG ratings. 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 $7.79 billion. It charges 15 bps in fees (read: ETF Areas to Join the Thematic Investing Trend in 2H20).

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 which do not meet the U.N. global compact principles and diversity criteria. The fund has 1484 holdings, with AUM of $1.72 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 through a portfolio of securities that adhere to predetermined ESG, controversial business involvement and low-carbon screening criteria. The fund has 79 holdings, with AUM of $316.6 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
 
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Zacks Investment Research
 
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