ESG ETFs Had a Winning 2021—but CFRA’s Todd Rosenbluth Says Be Selective

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Investing based on environmental, social, and governance, or ESG, factors means it’s time to sacrifice returns.

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In fact, according to Todd Rosenbluth, head of ETFs and mutual fund research at CFRA, many investors in the largest exchange-traded funds focused on sustainable U.S. stocks should be pleased with how these funds performed in 2021. . Seven of the 10 largest ETFs that focus on ESG factors outperformed the S&P 500 index last year.

“Given that ESG ETFs outperformed you last year, they are widely diversified, so they are not likely to significantly underperform or outperform,” Rosenbluth tells WebMD. baron’s,

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The performance was particularly notable because many of these ETFs charge high expense ratios. The $328 billion iShares Core S&P 500 ETF (ticker: IVV), which charges only 0.03% annually, was up 28.8% in 2012. Two ESG funds that use the S&P 500 as their potential constituent list delivered even better results: the $867 million Xtrackers S&P 500 ESG ETF (SNPE) and the $450 million SPDR S&P 500 ESG ETF (EFIV) at 31.4, respectively. % and 31.3%, both despite charging 0.1%.

Rosenbluth notes that the CFRA makes a distinction between ETFs that focus on the environment, such as clean energy or low-carbon-footprint strategies, versus ETFs that also take into account metrics around corporate governance and social change. . The latter can serve as core holdings in a portfolio, Rosenbluth notes, because they cover all sectors and are priced at “only a modest premium” to ETFs that strictly adhere to broad indices.

Of these, the 10 largest ETFs attracted net inflows of $15 billion in 2021 and collectively managed $52 billion by the end of the year. “It was a very strong year in collecting assets,” Rosenbluth says.

While iShares offers five of the 10 largest comprehensive US equity ESG ETFs, the fund is not constructed in the same way. For example, some iShares ESG ETFs are owned by Apple (AAPL) and Amazon.com (AMZN), while others do not.

Likewise, the size of their holdings varied: Among its largest holdings, iShares ESG Aware MSCI USA (ESGU) was the least-weighted Microsoft (MSFT).

“You might do better in ESG if you were overweight in the stock sector, and you probably avoid stocks that have lagged behind the broader market,” says Rosenbluth, noting that Microsoft had a great year in 2021, while facebook,
Now called Meta Platform (FB), no.

Rosenbluth says it’s important that investors choose a fund that offers the risk they are comfortable with. “ETF names don’t make it clear what you get inside a portfolio,” he says, adding that the devil is in the details.

“It’s really important to look at what you’re getting with ETFs, not just fees or just asset managers,” he says. “Investors need to decide: whether they are comfortable with stock-specific risks—that is, with double-digit leverage in Microsoft and no Amazon and no Apple—or whether they align with the market more broadly. want?”

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