In any otherwise-crowded ETF industry, socially responsible exchange-traded funds, also known as ESG (environmental, social, governance) funds, are one of the few nascent areas. Currently, there are nearly 40 such strategies on the market today with a total of $3.1 billion in assets under management―a tiny amount compared to the 2,000-plus U.S.-listed ETFs out there with $3 trillion in total.
But growth in the space has been accelerating. At this time last year, there were only 22 socially responsible or ESG exchange-traded funds available.
Not All The Same
Also known as ethical investing, impact investing, principles-based investing, sustainable investing and others, these strategies consider "environmental, social, and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact," according to the Forum for Sustainable and Responsible Investment.
“Socially responsible” is a blanket term, but the principles that such ETFs follow often vary dramatically. Take the Inspire Global Hope Large Cap ETF (BLES), which considers "biblical values" when picking its investments. It screens out companies associated with abortion, gambling, and "the LGBT lifestyle," among other things.
That's in sharp contrast to a fund such as the Workplace Equality Portfolio (EQLT), which holds stocks of companies that "support LGBT equality in the workplace."
Meanwhile, there are other ETFs that are laser-focused on completely different causes such as environmentalism and corporate governance.
China ETFs Ex-State-Owned Enterprises
This year's top-performing principles-based funds are concerned with the latter―corporate governance―which is "the structures and processes by which companies are directed and controlled," according to the International Finance Corporation.
The WisdomTree China ex-State-Owned-Enterprises Fund (CXSE) and the WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE) are up 48.5% and 32.6%, respectively, year-to-date.