These socially responsible ETFs cater to ESG investors.
Investors around the world are embracing strategies that align with their personal values and their pocketbooks. The clearest evidence of this is the rise of exchange-traded funds with an expressed focus on filtering investments based on environmental, social and corporate governance characteristics, or ESG. Global ESG assets are on the path to exceed $53 trillion by 2025, which represents more than one-third of a projected $140.5 trillion in total assets under management, according to Bloomberg Intelligence. Another reason investors are flocking to ESG funds is that they’ve proved to be resilient during the coronavirus pandemic. Of 26 ESG funds analyzed by S&P Global Market Intelligence from March 2020 to March 2021, 19 of those funds performed better than the S&P 500 did. So what are the leading funds capturing investors’ interest right now? Here are seven socially responsible ESG funds to consider.
iShares Global Clean Energy ETF (ticker: ICLN)
An iShares fund that tops this list is ICLN. It’s hard to argue that anyone concerned about climate change or carbon emissions would overlook ICLN as one of the most important ways to invest with environmental principles in mind. The fund offers investors exposure to companies that produce energy from solar, wind and other renewable resources and global clean energy stocks. With more than $5.8 billion of net assets, this fund is a liquid and established way for investors to play top names in the space, including Danish turbine giant Vestas Wind Systems AS and California-based solar energy company Enphase Energy Inc. (ENPH), among its 80 or so holdings. With just about 40% allocation to U.S. securities, ICLN takes a global sector view with investments in Canada, China, Denmark, Italy, Spain and other countries. It carries an expense ratio of 0.42%.
One-year return as of Sept. 30: 18%.
Thornburg Better World International Fund (TBWIX)
This Thornburg fund also takes a global approach to ESG investing. TBWIX seeks high-quality, fairly valued companies that could or already make a positive impact in the world. Some of the fund’s top sector allocations include information technology, industrials and consumer discretionary, with investments that span China, France, Japan, the U.K., the U.S. and other countries. Some of TBWIX’s top holdings include the largest online recruitment platform in China, Kanzhun Ltd. (BZ), backed by tech giant Tencent Holdings Ltd. Tokyo-based Renesas Electronics Corp., a Japanese semiconductor manufacturer, is another top allocation in the fund. Renesas recently announced a zero-carbon solution with other industry leaders as the company focuses on its climate change initiative of becoming carbon-neutral. Much of the fund is allocated toward large-cap companies. It holds net assets of more than $345 million.
One-year return: 37.7%
Natixis Sustainable Future 2030 Fund (NSFFX)
This sustainable target-date fund is part of a family of Natixis funds that rebalance over time to dial down risk as an investor nears retirement. The fund holds both active and passive investments. This single-fund solution invests across different asset classes for a diversified strategy that balances risk and reward. ESG considerations play an integral role in the selection process to drive long-term returns. The fund is on the smaller end compared to others on the list with just over $11 million of total assets. Among the fund’s top holdings are the Mirova Global Green Bond Fund (MGGYX) for fixed income, iShares ESG Aware MSCI ETF (ESGD), and individual securities like Nvidia Corp. (NVDA) and Facebook Inc. (FB).
One-year return: 22.8%
iShares ESG MSCI EAFE ETF (ESGD)
Another solid option for international investors looking for socially responsible ETFs is this iShares fund that’s focused on EAFE markets, or Europe, Australasia and the Far East. ESGD seeks a similar risk-return profile to the broad regional MSCI EAFE Index, with the goal of building a sustainable equity portfolio. Investors in ESGD get exposure to large- and midcap ESG companies in the target region. While you won’t get exposure to companies in the U.S. and Canada, you do get access to other developed markets. There’s a diverse lineup of companies across geographies and sectors, including Switzerland’s Nestle, French consumer giant LVMH and Japanese automaker Toyota Motor Corp. (TM) at the top of the list. With $6.7 billion in assets under management, more than 450 holdings and an affordable expense ratio of 0.2%, this global ESG fund is the go-to option for those looking for exposure outside the U.S.
One-year return: 26.2%
Vanguard ESG U.S. Stock ETF (ESGV)
At more than $5 billion in total assets under management, this socially responsible ETF from Vanguard holds more than 1,500 stocks and is among the most diversified when it comes to total holdings. Now, you may wonder how that many stocks — including some of the usual blue-chip brands like JPMorgan Chase & Co. (JPM) and Unitedhealth Group Inc. (UNH) — can have such a positive impact on the world. The answer is that this is just an “exclusionary” fund, meaning it cuts out the worst, based on rankings for ESG criteria, and presumes the rest are aboveboard. That’s not perhaps as strict as other funds, but it certainly gives you more peace of mind than simply buying everything in the name of diversification.
One-year return: 30.9%
iShares MSCI USA ESG Select ETF (SUSA)
This socially responsible ETF is, as the name implies, one of the most selective that iShares has to offer and is growing fast in popularity as a result. With more than 190 holdings in SUSA’s portfolio, investors are not getting a simplistic fund that removes exposure to controversial business activities like tobacco, alcohol, gambling and firearms. Instead, you might be surprised to find some names such as home improvement company Home Depot Inc. (HD) and credit card giant American Express Co. (AXP) make an appearance in SUSA’s portfolio. But that simply means you can be confident you’ll still get exposure to some traditionally popular domestic stocks without sacrificing your principles.
One-year return: 32%
1919 Socially Responsive Balanced Fund (SSIAX)
This fund takes a value investing approach by identifying socially responsible companies that have attractive valuations. SSIAX invests 70% of its assets in U.S. equities and 30% in investment-grade debt. Some of the fund’s top holdings include Microsoft Corp. (MSFT), Apple Inc. (AAPL), Alphabet Inc. (GOOG, GOOGL) and Amazon.com Inc. (AMZN). The fund has captured growth opportunities as the U.S. economy continues to recover from the coronavirus pandemic. It has done that by investing in companies such as Walt Disney Co. (DIS) and Visa Inc. (V) where consumer spending is expected to be on the rise. Investors in SSIAX would be holding a fund that has a reputation of scoring high in responsible investing with a strong sustainability profile.
One-year return: 18%
Seven socially responsible funds to buy now:
— iShares Global Clean Energy ETF (ICLN)
— Thornburg Better World International Fund (TBWIX)
— Natixis Sustainable Future 2030 Fund (NSFFX)
— iShares ESG MSCI EAFE ETF (ESGD)
— Vanguard ESG U.S. Stock ETF (ESGV)
— iShares MSCI USA ESG Select ETF (SUSA)
— 1919 Socially Responsive Balanced Fund (SSIAX)
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Update 10/01/21: This story was published at an earlier date and has been updated with new information.