Top ESG Launches Of The Year

December 01, 2021

As of the end of November, there have been more than 40 socially responsible ETFs launched this year.

If you step back to view the broad ESG category, the largest launch in the history of ETFs occurred earlier this year when the BlackRock U.S. Carbon Transition Readiness ETF (LCTU) ended its first day of trading with more than $1 billion.

However, that launch overshadows the numerous interesting debuts made in the ESG space this year. Three in particular seem to have caught on with investors, with assets reaching the $100 million milestone.

Each of these funds has a unique take on their respective areas of the market, which has allowed them to tap into investor appetite for socially responsible investing while standing out from the increasingly crowded ESG landscape.

Future Planet Leads

The Goldman Sachs Future Planet Equity ETF (GSFP) has been one of the most successful ESG launches of the year. The ETF is one of several thematic funds launched by the issuer this year and has gathered $107 million since launch on July 15. The fund is actively managed, investing in global companies that seek to address environmental problems.

The portfolio takes a multithematic approach to sustainability, investing in companies involved in clean energy, resource efficiency, sustainable consumption, the circular economy and water sustainability. This means the portfolio includes ideas such as sustainable fashion, plant-based nutrition and building efficiency.

 

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Similar But Different

A similar ETF in scope is the Invesco MSCI Sustainable Future ETF (ERTH), which holds $465.5 million in AUM. Prior to March 24, 2021, the fund traded under a different name and ticker, tracking an index based on clean tech.

However, ERTH’s focus is specifically on companies involved in a more efficient use of limited natural resources. And in spite of similar-sounding investment philosophies, only eight securities are currently held in both portfolios.

GSFP got off to a strong start with performance soon after its launch, though ERTH has since overtaken the fund, outperforming by 4.7% since GSFP’s launch.

 

 

However, it is important to remember that active management, such as that used by GSFP, should be judged over a full market cycle rather than a period of just a few months. And GSFP is beating ERTH on one metric that might be especially important for ESG investors.

 

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GSFP has a significantly higher ESG rating, garnering a score of 8.87 compared with ERTH’s 6.55, making it one of the best-ranked funds in its category.

Humankind Appeals To Investors

Another ESG fund that has seen success this year is the Humankind U.S. Stock ETF (HKND). Since launching on Feb. 24, the fund has gathered nearly $106 million.

The fund tracks an index that selects and weights U.S. stocks of any capitalization and is based on proprietary data. The resulting portfolio looks different from traditional cap-weighted ETFs such as the iShares Russell 3000 ETF (IWV), a fund that covers the entire cap spectrum with no ESG overlay.

 

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Although these portfolios differ from one another, performance of the two ETFs had been tracking in line with one another until recently.

 

 

Several of IWV’s top holdings, including Microsoft, Apple and Tesla, have performed particularly well since the beginning of October. While Microsoft and Apple are among the top holdings of both portfolios, they carry a larger weight in IWV.

And Tesla, which has gained more than 45% in the past two months, isn’t found in the Humankind portfolio at all. Short-term performance aside, the Humankind portfolio has several features that are potentially driving investor appeal.

 

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

 

The expense ratio for HKND is 0.11%, about half the expense ratio charged for IWV and cheaper than less differentiated ESG funds such as the iShares ESG Aware MSCI USA ETF (ESGU).

HKND’s investment philosophy is also easy for ESG investors to wrap their minds around. The fund invests in companies that do good for humankind, inclusive of everyone ranging from investors to employees to society at large.

Compare this with ESGU, which tracks an index of companies “that have positive environmental, social, and governance characteristics,” a description that is not nearly as straightforward or easy to understand.

Victory For VictoryShares

Another popular ESG launch of 2021 is the VictoryShares ESG Corporate Bond ETF (UCRD). The fund is actively managed, using a proprietary ESG and credit rating methodology to select investment-grade corporate bonds.

UCRD has gathered $103 million in assets since launching on Oct. 5. However, using the ETF Fund Flows tool shows that nearly $99 million flowed into the fund on a single day—Oct. 6—suggesting these assets belonged to existing clients.

 

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Launching less than two months ago, UCRD does not have much of a track record to compare. Relative to the Vanguard Intermediate-Term Corporate Bond ETF (VCIT), a $46 billion ETF that tracks a market-weighted index of investment-grade corporate bonds, UCRD does have a higher duration—8.72 years versus 6.48 for VCIT.

Given the current market environment, this higher interest rate sensitivity could be a head wind for fund performance going forward.

However, UCRD does not yet have a lot of competition. Currently, there are only 23 fixed income ESG funds in total, and only seven that fall into the same investment-grade corporate bond segment as UCRD, per FactSet’s classification.

Contact Jessica Ferringer at [email protected] or follow her on Twitter

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