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Sustainable ETF Investments That Could Diversify, Enhance a Portfolio

This article was originally published on ETFTrends.com.

Socially responsible ETF strategies that try to capture environmental, social and governance principles can help investors diversify and enhance their portfolios in a meaningful way while leaving a positive impact on the world.

In the upcoming Disruptive ETF Virtual Summit, an online virtual conference hosted by ETF Trends on Thursday, Oct. 18, 2018, OppenheimerFunds will cover the topic of ESG or environmental, social and governance investing that targets investors who are guided by various principles and seek out companies that strive to do social good.

ESG investments have already gained wider popularity in Europe, with much of the demand coming out of institutions. Corporations in Europe are more focused on societal good, which is different than how we think about corporations in the United States, but it is slowly starting to change.

Beyond backing the well being of the world we live in, the ESG-related strategies may also benefit investment portfolios as well. ESG is seen as a means to manage downside risks, along with the potential to enhance returns.

Academic research has revealed that strong governance mechanisms have helped diminish default risk and lower bond yields. The ESG principle are more of a way of living or conducting business that correspond with a firm’s core values. Many companies have defined their corporate social responsibility to account for their impact on the environment and social welfare even if there is no legal requirement.

Investors who believe in the positive attributes of a socially responsible ETF strategy may consider options like the Oppenheimer ESG Revenue ETF (ESGL) and Oppenheimer Global ESG Revenue ETF (ESGF) .

ESGL targets broad U.S. large-caps through the S&P 500 but screens through Sustainalyics’ proprietary scoring system that focuses on those with positive ESG attributes and employs a revenue-weighted methodology.

ESGF, on the other hand, takes a global approach. The ETF tries to outperform the MSCI All Country World Index with strong ESG practices and re-weights companies based on revenue earned. MSCI ESG Research utilizes a proprietary ESG scoring system and screens companies based on Sharpe Ratio, a measure of risk-adjusted performance.

ESG investments try to deliver returns while monitoring the long-term impact of a company’s business practices on society, the environment and performance of the business.

Along with the ESG weights to potentially enhance returns and limit risks, OppenheimerFunds ETFs also implement a revenue-weighting methodology that could provide diversified exposure to the market, is not influenced by stock price, reflects a truer indication of a company’s value and offers stable sector exposure.

To get more insight on disruptive ETFs, sign up for the Disruptive ETF Virtual Summit set to take place this fall.