ESG ETFs In 2019: Institutions Buy In

December 20, 2019

Investors Lose Interest In Thematic Funds

2019 saw only a handful of thematic launches, such as the freedom-weighted Alpha Architect Freedom 100 Emerging Markets ETF (FRDM) in May and the U.S. Vegan Climate ETF (VEGN) in September. There was also the launch of the first ETF compliant with Islamic religious principles (known as Shariah law), the Wahed FTSE USA Shariah ETF (HLAL).

Intriguingly, there were more thematic ETFs that closed this year than opened. Two LGBTQ-friendly ETFs closed, including the Workplace Equality Portfolio ETF (EQLT) and the InsightShares LGBT Employment Equality ETF (PRID).

Other funds that shut up shop included renewable the energy-focused Invesco WilderHill Progressive Energy ETF (PUW) and a biblically aligned fund, the James Purpose Based Investment ETF (JPBI).

New Launches Target Asset Allocations

On the whole, most new ESG ETF launches were more like USSG or SUSL; that is, products designed to slot neatly in investors' traditional, broad-based asset allocations. For example, the Nuveen ESG Large-Cap ETF (NULC) or the Xtrackers S&P 500 ESG ETF (SNPE) won't set any hearts or minds on fire, perhaps, but they are designed to function nicely as socially responsible replacements for traditional S&P 500 Index ETFs.

Notably, a few ESG bond ETFs also launched in 2019, filling out a segment sorely lacking in options for investors.

In September, the Nuveen ESG High Yield Corporate Bond ETF (NUHY) launched as the first ESG junk bond ETF; while just last week saw the debut of the actively managed PIMCO Enhanced Short Maturity Active ESG ETF (EMNT), the first to cover short-term bonds.

2020: Year For Innovation?

What comes next in ESG? We hesitate to make too many predictions, but if filings are any indication, issuers may spend the next few months in a holding pattern, waiting to see which, if any, of the many funds that launched in 2019 will take off with investors.

Filings in the pipeline for new funds are few and far between, though there are still a few notable offerings yet to launch. For example, in September, State Street filed for its own line of ESG bond ETFs, as well as growth and value ESG funds.

Then in November, Direxion filed for a long/short strategy that would go long on highly rated ESG stocks, while shorting low-rated ones (read: "ETF Filings: Long/Short ESG & Treasury Ladders").

That said, with a contentious election coming up and a freshly impeached president, ESG issues are going to loom larger than ever in U.S. investors' minds—making 2020 perhaps an ideal year for issuers and investors alike to get into the game.

Contact Lara Crigger at [email protected]

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