Unusual Flows Into ESG Value ETF

The $422 million Nuveen ESG Large-Cap Value ETF (NULV) has seen a surprising pop in investment assets over the past thirty days, with inflows of $251 million, the third highest of any ESG ETF.

NULV's flows are on par with money entering much larger ESG funds, like the $2.2 billion Xtrackers MSCI U.S.A. ESG Leaders Equity ETF (USSG) and the $2.2 billion iShares ESG MSCI USA Leaders ETF (SUSL), which brought in $370 million and $265 million, respectively.

Most of the cash came into NULV over the past week, with $181 million entering the fund on June 10, followed by a $55 million inflow on June 12:

Source: ETF.com. Data as of Jun. 17, 2020.

Given the spikiness of the flows, NULV's new assets likely originate from a single investor or a small handful of investors.

The inflows may even be due to more "bring-your-own-assets" cash from Nuveen itself; TIAA, which operates Nuveen as a separate subsidiary, had a 35% stake in NULV, according to the latest 13-F data available.

A Big Bet On Value

Regardless whether the inflows are coming from inside the house or not, though, NULV is still an unusual fund to attract cash, because until this point, NULV's assets have remained fairly modest. Until last week, the most the fund had ever taken in at once was an $8 million inflow on Nov. 7, 2019.

Clearly, an ESG-minded investor is making a big bet on value, and as the sole U.S. large-cap value ETF in the ESG space, NULV is the beneficiary of that bet. 

Intriguingly, though, NULV's inflows aren't just sizable for an ESG fund; they're also higher compared to other U.S. large cap value ETFs, too.

Of the 26 U.S. large cap value funds on the market, NULV has seen the third highest inflows, behind the $4.8 billion SPDR Portfolio S&P 500 Value ETF (SPYV) and the $6.5 billion Schwab U.S. Large-Cap Value ETF (SCHV), which saw inflows over the past month of $476 million and $421 million, respectively.

Do ESG Screens Make Sense For Value Investors?

Lately, value investing in general has seen a spike of interest among defensive-minded investors. Value investing is predicated on the assumption that the market is overvaluing some stocks and undervaluing others—and those undervalued stocks offer opportunities for those brave enough to look. (Read: "Value Investing Not Dead, Just Wait.")

However, there's always the risk that the market has accurately valued the value stock in question, and that the investor is in fact buying a lower-quality, higher-risk company.

That's where an ESG screen may be able to help.

Good corporate governance is one of the three pillars of ESG investing; meaning, a stock that ranks highly on ESG criteria has a higher chance of being well-run. As a result, value stocks that rank highly along ESG credentials—such as those populating NULV's portfolio—may have a general tendency to be better able to withstand sustained market stress.

Or so the theory goes. Reality may tell a different story, however. Year-to-date, NULV is down 13.0%; whereas the SPDR S&P 500 ETF Trust (SPY), a vanilla market-cap weighted large-cap fund, is down 2.2%:

Source: StockCharts.com. Data as of Jun. 17, 2020.

Contact Lara Crigger at [email protected]