{"id":2845,"date":"2022-03-01T19:48:11","date_gmt":"2022-03-01T19:48:11","guid":{"rendered":"http:\/\/blog.valuengine.com\/?p=2845"},"modified":"2022-03-01T19:48:11","modified_gmt":"2022-03-01T19:48:11","slug":"time-for-impact-investors-and-contrarians-to-unite-behind-clean-energy-etfs","status":"publish","type":"post","link":"http:\/\/blog.valuengine.com\/index.php\/time-for-impact-investors-and-contrarians-to-unite-behind-clean-energy-etfs\/","title":{"rendered":"Time for Impact Investors and Contrarians to Unite Behind Clean Energy ETFs"},"content":{"rendered":"

The trend is your friend.\u00a0 That is, until it isn\u2019t.\u00a0\u00a0<\/span><\/p>\n

The list of best performing non-leveraged ETFs for the past 90-days is led almost exclusively by ETFs that hold the stocks of fossil-fuel-based energy and closely related companies.\u00a0 At the same time, the prices of ESG and more climate-focused impact ETFs have plunged dramatically.\u00a0 With close eyes on the ever-worsening conflict in the Ukraine and its projected effects on oil prices and inflation, few experts are expecting a reversal to come in the next six months.\u00a0 However, there are some contrarians that do see a reversal on the horizon.\u00a0 This week we look at Impact ETFs with an emphasis on environmentally focused ETFs.\u00a0\u00a0<\/span><\/p>\n

All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 500 ETFs have been updated on <\/b>www.ValuEngine.com<\/b><\/a><\/h5>\n
Free Two Week Trial to all 5,000 plus equities and ETFs covered by ValuEngine <\/b>HERE<\/b><\/a><\/h5>\n
Financial Advisory Services based on ValuEngine research available: \u00a0 <\/b>www.ValuEngineCapital.com<\/b><\/a><\/h5>\n

The SustainFi.com website maintains a helpful list of the mind-boggling number of ETFs designed for ESG and Impact investors.\u00a0 Even more helpful, it follows a taxonomy that allows readers to zero in on the ETFs that fall into the classification that most interests them. This article only includes ETFs that contain mostly US Stocks.\u00a0<\/span><\/p>\n

The first grouping contains the names and tickers of 21 broad-based ESG funds and is listed below. Broad-based ESG ETFs generally utilize best-of-industry scores in Environmental, Social and Governance rankings in their methodologies to eliminate poor scorers, generally by at least 50% in each industry. There are nuances separating each.\u00a0 For example, iShares by BlackRock and MSCI have created three different levels of screened ETFs with <\/span>ESGU<\/b> screening out the bottom 50% of ESG scorers in each industry group; <\/span>SUSA<\/b> eliminates all carbon-based and other exposures from ESGU and <\/span>SUSL<\/b> focuses on the top 25% of performers in <\/span>SUSA.<\/b>\u00a0\u00a0<\/span><\/p>\n

Indexes, targeted segments such as cap size, and value\/growth are available.\u00a0 What most of these have in common is that they are created primarily for risk control.\u00a0 Many studies during the last ten years have confirmed that companies that score below average on ESG have more risk of future reputation-damaging events that affect revenues and stock performance.\u00a0 Indeed, most of the funds listed here have outperformed their selected benchmarks over the last 5 years, generally with slightly better Sortino Ratios (a measure similar to Sharpe ratio but looking only at downside deviations).\u00a0 This makes them solid core investments and very suitable for the needs of institutional investors. <\/span>ESGU <\/b>with more than 20 billion dollars under management and AAA (highest) ESG rating from MSCI is a solid institutional choice.<\/span><\/p>\n

Current ValuEngine reports on these ETF\u2019s can be viewed <\/b>HERE<\/b><\/a><\/h5>\n

Broad-Based ESG-Screened Funds <\/b>(22)<\/span><\/h2>\n

FlexShares STOXX US ESG Select Index Fund (ESG)<\/span><\/p>\n

iShares ESG Aware MSCI USA ETF (ESGU)<\/span><\/p>\n

iShares ESG MSCI USA Leaders ETF (SUSL)<\/span><\/p>\n

iShares MSCI USA ESG Select ETF (SUSA)<\/span><\/p>\n

Vanguard ESG U.S. Stock ETF (ESGV)<\/span><\/p>\n

Xtrackers MSCI USA ESG Leaders Equity ETF (USSG)<\/span><\/p>\n

iShares MSCI KLD 400 Social ETF (DSI)<\/span><\/p>\n

Nuveen ESG Large-Cap Value ETF (NULV)<\/span><\/p>\n

Nuveen ESG Small-Cap ETF (NUSC)<\/span><\/p>\n

iShares ESG Aware MSCI USA Small-Cap ETF (ESML)<\/span><\/p>\n

Nuveen ESG Large-Cap Growth ETF (NULG)<\/span><\/p>\n

Xtrackers S&P 500 ESG ETF (SNPE)<\/span><\/p>\n

IQ Candriam ESG US Equity ETF (IQSU)<\/span><\/p>\n

Nuveen ESG Mid-Cap Growth ETF (NUMG)<\/span><\/p>\n

Nuveen ESG Mid-Cap Value ETF (NUMV)<\/span><\/p>\n

SPDR S&P 500 ESG ETF (EFIV)<\/span><\/p>\n

iShares ESG Advanced MSCI USA ETF (USXF)<\/span><\/p>\n

ClearBridge Large Cap Growth ESG ETF (LRGE)<\/span><\/p>\n

Nuveen ESG Large-Cap ETF (NULC)<\/span><\/p>\n

WisdomTree U.S. ESG Fund (RESP)<\/span><\/p>\n

Nuveen Winslow Large-Cap Growth ESG ETF (NWLG)<\/span><\/p>\n

Hartford Schroders ESG US Equity ETF (HEET)<\/span><\/p>\n

As Todd Rosenbluth of CFRA wrote for an article printed in Barron\u2019s in January, 7 of 10 funds fitting the large-cap or total market categories outperformed the S&P 500 in 2021. My research using ValuEngine data shows that most of these also outperformed the S&P 500 over the five-year period ending December 31, 2021. This is noteworthy since the majority of ETFs and a larger majority of mutual funds did not do so. <\/span>As many others have documented, we now have enough data to conclude that empirically, the outdated belief that funds that take social responsibility criteria into account must sacrifice performance is dead.\u00a0\u00a0\u00a0\u00a0<\/b><\/p>\n

Most institutional portfolio management teams now consider ESG pillar data to be risk factors.\u00a0 From a valuation perspective, they are calculable \u201cintangibles\u201d that should be accounted for on a modernized balance sheet.\u00a0 We are quickly getting to a time where asset managers not doing so risk being criticized for not following best practices.\u00a0 Therefore, ESG ETFs are simply more prudent core investment allocations than traditional ETFs. For these reasons, most taxonomies of responsible investing in today\u2019s world make a distinction between ESG investing, also called ESG-Aware investing, and Impact Investing.\u00a0 Somewhere between the two lies Fossil-Fuel-Free Investing\u00a0<\/span><\/p>\n

Most of the constituents of Fossil Free funds are similar. However, the resultant industry sector \u201cbets” will create cyclical outperformance and underperformance that may be considered suboptimal for institutional investors focused on benchmark tracking.<\/span><\/p>\n

Broad-based ESG ETFs are not, however, the most targeted options for investors that truly wish to align their investment dollars with their personal convictions.\u00a0 <\/span>ESGU, for example,<\/b> will contain high-carbon companies such as ExxonMobil and other companies with business practices many investors may find abhorrent for diverse reasons.\u00a0 An individual or group looking for value alignment however is unlikely to be satisfied with <\/span>ESGU<\/b> because they still own too many companies engaged in activities inconsistent with ESG objectives.<\/span><\/p>\n

Let\u2019s take a look at more targeted categories of impact ETFs.\u00a0<\/span><\/p>\n

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