{"id":2990,"date":"2022-11-21T23:19:26","date_gmt":"2022-11-21T23:19:26","guid":{"rendered":"http:\/\/blog.valuengine.com\/?p=2990"},"modified":"2022-11-21T23:19:26","modified_gmt":"2022-11-21T23:19:26","slug":"esg-etfs-between-blackrock-and-a-hard-place","status":"publish","type":"post","link":"http:\/\/blog.valuengine.com\/index.php\/esg-etfs-between-blackrock-and-a-hard-place\/","title":{"rendered":"ESG & ETFs: Between BlackRock and a Hard Place"},"content":{"rendered":"

An excellent ETF.com article was posted on September 22.\u00a0 \u201cNYC Comptroller: Blackrock ESG Standards Alarming\u201d highlighted a very public effort by Brad Lander to shame Blackrock into being more environmentally conscious.\u00a0 New York City Comptroller Brad Lander demands the company bolster its climate disclosures and publish a plan that establishes its commitment to net-zero greenhouse gas emissions across all of the assets they manage. The same article highlights the fact that BlackRock has lost accounts with state pension funds and has come under fire by no less than 19 Republican Attorney Generals who accuse the firm of collaborating politically with climate activists instead of siding with clients.\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

I was quoted in the article characterizing the extent to which Blackrock was in a no-win situation by being singled out by both sides ostensibly because it is the largest asset manager in the world. I stated \u201c\u2026I think trying to demand that [Blackrock] does not accept any customers who want exposure to those fields is absolutely beyond the pale.\u201d<\/span><\/p>\n

The origins of these assaults on BlackRock begin with the term ESG itself.\u00a0 For those not familiar, ESG stands for Environmental, Social and Governance.\u00a0 It was intended as a way of specifying the main principles of aligning investments with beliefs in a better world known as Socially Responsible Investing (SRI).\u00a0 Unfortunately, terms have been tossed about and confused so much that it is unclear to many people what ESG is and what it isn\u2019t.\u00a0<\/span><\/p>\n

Among those of us trying to provide differentiation, there is a loose agreement that there are three major categories of responsible investing:<\/span><\/p>\n

    \n
  1. ESG Investing, when properly defined, usesg ESG ratings for risk management; specifically screening out companies that score poorly on a checklist of best industry practices. ESG investing of this type does NOT eliminate industries such as Oils-Integrated or Alcohol.<\/span><\/li>\n
  2. Sustainable Investing begins with a screened list of companies that omitts those with the worst ESG scores.\u00a0 Then it further screens out companies involved in industrial practices that are deemed harmful for the future of the planet.\u00a0 This can be interpreted in different ways but generally focuses on environmental concerns.<\/span><\/li>\n
  3. Impact Investing characterizes ETFs most specifically designed to align investors\u2019 personal values with their investments.\u00a0 Themes here can run the gamut from green energy to evolving technologies to social justice, etc.\u00a0 These tend to be narrower and more individual-investor oriented than the ETFs in the first two categories.\u00a0 They are designed for long-term investors who want to invest in companies trying to make an impact on society for a better world.\u00a0\u00a0<\/span><\/li>\n<\/ol>\n

    In 2006, iShares became the first company to offer an ESG ETF, <\/span>DSI,<\/b> based on an index created by a firm called KLD Research and Analytics.\u00a0 That was three years before Barclay\u2019s Global Investors and iShares were sold to Blackrock making the latter the largest asset manager in the world.<\/span><\/p>\n

    Since being acquired by BlackRock, iShares has been the leader among ETF issuers in providing a multitude of responsible investing options.\u00a0 Today, there are 35 iShares that fit the Responsible Investing Category. It has also been attempting to provide ETFs that meet the disparate objectives of different investment constituencies.\u00a0\u00a0<\/span><\/p>\n

    Their core institutional series include 7 ETFs branded \u201cESG Aware\u201d that fit the definition category #1 above.\u00a0 These ETFs use ESG ratings to weed out the lowest scorers in each industry\/sector of other relevant groupings. No entire industries are screened out. The broadest based US ETF and the ESG ETF with the highest assets under management by far is MSCI USA ESG Aware Index ETF. <\/span>ESGU <\/b>is its ticker symbol. IShares also provides two other naming conventions for broad-based US Equity ETFs. \u201cESG Select\u201d, <\/span>SUSA,<\/b> first screens out companies engaged in \u201cunsustainable practices\u201d, such as companies engaged in carbon-based energy practices, before employing a similar screen to weed out the stocks of companies in the lower half of ESG scores within each industry group. Please note that the first three letters in this ticker are \u201cSUS\u201d for sustainable rather than \u201cESG.\u201d\u00a0 Even more stringent screens and standards for inclusion are applied to the MSCI USA Extended ESG Leaders ETF, <\/span>SUSL.<\/b>\u00a0<\/span><\/p>\n

    Impact investing is frequently also referred to as a subset of thematic investing by the larger ETF issuer community, but I think that may be misleading.\u00a0 Thematic ETFs are generally tactical tools that institutional trading desks, RIAs and individuals may use for opportunity deployment until a market cycle or trend falls out of favor.\u00a0 Impact ETFs, constructed to align investment dollars with underlying values are viewed as long-term commitments to investing in a better world. IShares offers 8 ETFs fitting this category, the largest of which is <\/span>ICLN, <\/b>iShares Global Clean Energy ETF.\u00a0\u00a0<\/span><\/p>\n

    Current ValuEngine reports on these stocks or ETFS can be viewed <\/b>HERE<\/b><\/a><\/h5>\n

    Sector, industry and factor-tilted ETFs together come pretty close to defining tactical thematic investing.\u00a0 It is tactical deployment of part of one\u2019s overall equity allocation for the period of time that the investor thinks that sector, industry or factor will be in favor.\u00a0\u00a0<\/span><\/p>\n

    The iShares impact ETF with the longest history is <\/span>ICLN, iShares Global Clean Energy ETF.\u00a0 <\/b>\u00a0This is even after enduring a -15.4% return for the past 12-months.\u00a0 One iShares ETF that can be thought of as opposite to <\/span>ICLN <\/b>is <\/span>IEO, iShares U.S. Oil & Gas Exploration & Production ETF.\u00a0 <\/b>The companies in this ETF include Conoco Phillips (18.7%) and EOG (9.5%).\u00a0 They epitomize the expression \u201cDrill, baby, Drill\u201d. Please note that iShares\u2019 website provides the exact same materials for <\/span>IEO <\/b>as <\/span>ICLN.\u00a0 <\/b>Excluding leveraged ETFs, <\/span>IEO <\/b>was one of the top five returning ETFs during the past 12 months.\u00a0 For various reasons, many tactical and thematic investors purchased <\/span>IEO <\/b>during this period and were rewarded with a mammoth 71% return.\u00a0\u00a0<\/span><\/p>\n

    The chart above not only delineates the difference between <\/span>ICLN <\/b>and <\/span>IEO <\/b>in returns during four different time frames during the past ten years.\u00a0 It also illustrated the difference between impact investing and tactical investing in terms of time horizon.\u00a0 <\/span>IEO <\/b>posted negative returns in 6 of the past 10 years.\u00a0 It cycles in and out of favor. Ultimately, however, most of the world anticipates that after 2035, the demand for oil will decrease incrementally given global nations\u2019 commitments and improving clean energy technology.\u00a0 Commonly, thought leaders refer to the future of oil reserves as stranded assets. If true, there will be little if any need for companies such as <\/span>EOG<\/b>, an entire business built on oil exploration and drilling; it would not be a stock for anyone with a long-term buy-and-hold investment philosophy.\u00a0\u00a0<\/span><\/p>\n

    Alternatively, impact investors invest in <\/span>ICLN <\/b>because they want to align investment returns with their personal values and beliefs in a better future for the world.\u00a0 They feel that by doing this, they provide more capital for \u201cgood\u201d companies and restrict capital going to old energy companies.\u00a0 <\/span>ICLN <\/b>is a long-term investment geared for buy-and-hold investors.\u00a0 Its 5-year annualized return is 70%, higher than that of the S&P 500.\u00a0 Its 10-year annualized return of nearly 15% also outperforms <\/span>SPY <\/b>substantially while coming close to doubling that of <\/span>OIH.\u00a0 <\/b>So, impact investing is not about giving up the opportunity for superior returns.\u00a0 It\u2019s about not worrying about short-term market cycles while sticking with personal convictions.<\/span><\/p>\n

    Current ValuEngine reports on these stocks or ETFS can be viewed <\/b>HERE<\/b><\/a><\/h5>\n

    This week\u2019s analysis includes six ESG ETFs and <\/span>SPY, <\/b>the SPDR S&P 500 Index Trust.\u00a0 Four of these ETFs are iShares sponsored by Blackrock and presented in order of increasingly stringent ESG selection criteria. The other two, <\/span>ESMV <\/b>and <\/span>NULV, <\/b>have factor tilts, minimum volatility and value respectively, overlaid on simple ESG screens.<\/span><\/p>\n

    DSI, iShares MSCI KLD Social 400 Index <\/b>is a socially conscious ETF with reasonable market-like exposure. The fund limits its holdings to firms deemed to be socially responsible, from an environmental, social, and governance (ESG) standpoint. It excludes stocks of companies significantly involved with weapons manufacturing, “vice” products, nuclear energy and genetic modification. Those firms that make the cut are ranked according to ESG criteria.\u00a0<\/span><\/p>\n

    ESGU, MSCI USA ESG Aware Index ETF<\/b> attempts to maintain tight tracking to the broad MSCI USA Index (a benchmark similar to albeit somewhat larger than the S&P 500). Companies in the broad index are rated based on ESG factors.\u00a0 Portfolio optimization software is then used to maximize the funds\u2019 stake in highly-rated companies while staying true to a market-like exposure.<\/span><\/p>\n

    SUSL, MSCI USA Extended ESG Leaders Index, <\/b>also starts with the MSCI USA Index, then removes firms involved with major business controversies as well as companies engaged in tobacco, alcohol and gambling, nuclear power and certain weapons. As the \u2018extended\u2019 version of the MSCI ESG Leaders Index, the fund further excludes producers and major retailers of firearms. Firms passing this screen are assigned with an ESG score with adjustments for sector and cap weight. The fund removes firms with lower rankings.\u00a0<\/span><\/p>\n

    USXF, MSCI USA Choice ESG Screened Index, <\/b>invests in US equities with above average ESG ratings relative to its sector peers. The underlying index starts with the MSCI USA Index (the parent) and excludes companies engaged in controversial activities like nuclear weapons, genetic engineering, palm oil, private prisons, and predatory lending. Firms in the energy sector per GICS methodology, including those involved in fossil fuels, reserve ownership, related revenues and power generation are also excluded, with the exception of firms having bulk of their revenues tied to alternative energy. The remaining companies are ranked based on a sector-specific ESG Key Issues (e.g. carbon emissions) selection and weighting model. Only those with above average scores (BBB and up) are selected. The market cap-weighted index is reviewed quarterly and excludes small-cap firms.<\/span><\/p>\n

    ESMV, MSCI USA Minimum Volatility Extended ESG Reduced Carbon Target Index <\/b>provides exposure to large- and mid-cap US stocks that have low volatility, reduced carbon exposure, and positive ESG characteristics. The fund then applies an optimizer to select and weight securities, aiming to achieve lower volatility and better ESG qualities relative to the parent index.\u00a0<\/span><\/p>\n

    NULV, TIAA ESG USA Large-Cap Value Index <\/b>is sponsored by Nuveen which acquired asset manager and index provider TIAA-CREF in 2018.\u00a0 It has been chosen partially because it has a value tilt and a longer history than any of the iShares ESG ETFs with factor tilts. <\/span>NULV<\/b> selects large-cap stocks from the MSCI USA Value Index which itself selects value stocks according to price\/book, forward price\/earnings, and dividend yield. From there, <\/span>NULV <\/b>screens out companies involved in controversial businesses, such as alcohol, weapons, nuclear power, and gambling. Companies that exceed carbon emissions thresholds are also excluded. The portfolio is weighted according to a multi-factor optimization algorithm.<\/span><\/p>\n

    SPY, <\/b>the <\/span>SPDR S&P 500 Index Trust ETF<\/b> mimics the S&P 500 index.<\/span><\/p>\n

    The table below provides summary data as of Nov. 13, 2022, for analysis.\u00a0<\/span><\/p>\n

    Current ValuEngine reports on these stocks or ETFS can be viewed <\/b>HERE<\/b><\/a><\/h5>\n

     <\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
    <\/td>\nDSI<\/b><\/td>\nESGU<\/b><\/td>\nSUSL<\/b><\/td>\nUSXF<\/b><\/td>\nESMV<\/b><\/td>\nNULV<\/b><\/td>\nSPY<\/b><\/td>\n<\/tr>\n
    Market Index Being Tracked<\/span><\/td>\nMSCI KLD Social 400 Index<\/b><\/td>\nMSCI USA ESG Aware Index<\/b><\/td>\nMSCI USA Extended ESG Leaders Index<\/b><\/td>\nMSCI USA Choice ESG Screened Index<\/b><\/td>\nMSCI USA Minimum Volatility Extended ESG Reduced Carbon Target Index<\/b><\/td>\nTIAA ESG USA Large-Cap Value Index<\/b><\/td>\nSPDR S&P 500 Index Trust ETF<\/b><\/td>\n<\/tr>\n
    ValuEngine Rating<\/b><\/td>\n2<\/b><\/td>\n3<\/b><\/td>\n3<\/b><\/td>\n4<\/b><\/td>\n3<\/b><\/td>\n2<\/b><\/td>\n3<\/b><\/td>\n<\/tr>\n
    VE Forecast 3-mo. Price Return<\/b><\/td>\n1.75%<\/span><\/td>\n1.85%<\/span><\/td>\n1.83%<\/span><\/td>\n1.85%<\/span><\/td>\n2.28%<\/b><\/td>\n1.76%<\/span><\/td>\n1.86%<\/span><\/td>\n<\/tr>\n
    VE Forecast 6-Mo. Price Return<\/b><\/td>\n4.46%<\/span><\/td>\n4.43%<\/span><\/td>\n4.6%<\/span><\/td>\n4.53%<\/span><\/td>\n5.15%<\/b><\/td>\n4.32%<\/span><\/td>\n4.52%<\/span><\/td>\n<\/tr>\n
    VE Forecast 1-yr. Price Return<\/b><\/td>\n-1.97%<\/span><\/td>\n-1.73%<\/span><\/td>\n-2.15%<\/span><\/td>\n-1.67%<\/b><\/td>\n-2.10%<\/span><\/td>\n-3.86%<\/span><\/td>\n-2.29%<\/span><\/td>\n<\/tr>\n
    Largest Sector Weight (%)<\/span><\/td>\nComp. & Tech. 33.4%<\/span><\/td>\nComp. & Tech. 28.4%<\/span><\/td>\nComp. & Tech. 30.1%<\/span><\/td>\nComp. & Tech. 34.8%<\/span><\/td>\nComp & Tech. 20.4%<\/span><\/td>\nFinance 22.1%<\/span><\/td>\nComp. & Tech. 28.6%<\/span><\/td>\n<\/tr>\n
    Largest Holding<\/span><\/td>\nMicrosoft (<\/span>MSFT<\/b>) 9.5%<\/span><\/td>\nApple (<\/span>AAPL<\/b>) 6.7%<\/span><\/td>\nMicrosoft (<\/span>MSFT<\/b>) 9.9%<\/span><\/td>\nMicrosoft (<\/span>MSFT<\/b>) 10.9%<\/span><\/td>\nGilead Scienced (<\/span>GILD<\/b>) 1.9%<\/span><\/td>\nJP Morgan Chase (<\/span>JPM<\/b>)<\/span><\/p>\n

    2.2%<\/span><\/td>\n

    		Apple (<\/span>AAPL<\/b>) 6.7%<\/span><\/td>\n<\/tr>\n
    Last mo. Price Return<\/span><\/td>\n12.25%<\/span><\/td>\n11.65%<\/span><\/td>\n11.70%<\/span><\/td>\n13.39%<\/span><\/td>\n10.56%<\/span><\/td>\n13.85%<\/b><\/td>\n11.40%<\/span><\/td>\n<\/tr>\n
    Last 3 mo. Price Return<\/span><\/td>\n-6.30%<\/span><\/td>\n-5.49%<\/span><\/td>\n-5.68%<\/span><\/td>\n-5.29%<\/span><\/td>\n-2.81%<\/span><\/td>\n-1.31%<\/b><\/td>\n-5.11%<\/span><\/td>\n<\/tr>\n
    Historic 1-Yr. Price Return\u00a0<\/span><\/td>\n-18.71%<\/span><\/td>\n-16.50%<\/span><\/td>\n-17.40%<\/span><\/td>\n-19.64%<\/span><\/td>\n-8.74%<\/b><\/td>\n-10.69%<\/span><\/td>\n-14.07%<\/span><\/td>\n<\/tr>\n
    Historic 3-Yr. Price Return\u00a0<\/span><\/td>\n9.12%<\/span><\/td>\n9.99%<\/span><\/td>\n8.99%<\/span><\/td>\nN\/A<\/span><\/td>\nN\/A<\/span><\/td>\n3.34%<\/span><\/td>\n10.03%<\/b><\/td>\n<\/tr>\n
    Historic 5-Yr Ann. Price Return<\/span><\/td>\n8.20%<\/span><\/td>\n8.40%<\/b><\/td>\nN\/A<\/span><\/td>\nN\/A<\/span><\/td>\nN\/A<\/span><\/td>\n4.14%<\/span><\/td>\n8.13%<\/span><\/td>\n<\/tr>\n
    Volatility<\/span><\/td>\n18.8%<\/span><\/td>\n18.9%<\/span><\/td>\n20.0%<\/span><\/td>\n20.0%<\/span><\/td>\n19.5%<\/span><\/td>\n18.6%<\/b><\/td>\n18.6%<\/span><\/td>\n<\/tr>\n
    Sharpe Ratio\u00a0<\/span><\/td>\n0.44<\/b><\/td>\n0.44<\/b><\/td>\n0.40<\/span><\/td>\nN\/A<\/span><\/td>\nN\/A<\/span><\/td>\n0.22<\/span><\/td>\n0.44<\/b><\/td>\n<\/tr>\n
    Beta<\/span><\/td>\n1.01<\/span><\/td>\n1.02<\/span><\/td>\n1.00<\/span><\/td>\n1.04<\/span><\/td>\n0.83<\/b><\/td>\n0.95<\/span><\/td>\n1.01<\/span><\/td>\n<\/tr>\n
    # of Stocks<\/span><\/td>\n398<\/span><\/td>\n312<\/span><\/td>\n278<\/span><\/td>\n363<\/span><\/td>\n162<\/span><\/td>\n100<\/span><\/td>\n500<\/span><\/td>\n<\/tr>\n
    % of Stocks Undervalued by VE\u00a0<\/span><\/td>\n29.4%<\/b><\/td>\n20.8%<\/span><\/td>\n26.3%<\/span><\/td>\n25.6<\/span>%<\/b><\/td>\n18.8%<\/span><\/td>\n25.6%<\/span><\/td>\n22.4%<\/span><\/td>\n<\/tr>\n
    P\/B Ratio<\/span><\/td>\n4.2<\/span><\/td>\n3.6<\/span><\/td>\n4.3<\/span><\/td>\n4.1<\/span><\/td>\n4.5<\/span><\/td>\n2.2<\/b><\/td>\n3.8<\/span><\/td>\n<\/tr>\n
    P\/E Ratio<\/span><\/td>\n18.7<\/span><\/td>\n17.3<\/span><\/td>\n20.1<\/span><\/td>\n20.5<\/span><\/td>\n21.8<\/span><\/td>\n14.0<\/b><\/td>\n17.4<\/span><\/td>\n<\/tr>\n
    Div. Yield<\/span><\/td>\n1.3%<\/span><\/td>\n1.7%<\/span><\/td>\n1.6%<\/span><\/td>\n1.4%<\/span><\/td>\n1.5%<\/span><\/td>\n1.9%<\/b><\/td>\n1.6%<\/span><\/td>\n<\/tr>\n
    Expense Ratio<\/span><\/td>\n0.25%<\/span><\/td>\n0.15%<\/span><\/td>\n0.10%<\/b><\/td>\n0.10%<\/b><\/td>\n0.18%<\/span><\/td>\n0.25%<\/span><\/td>\n0.09%<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    * ETF Undervaluation # is the percentage of undervalued stocks, not a comparison with all other ETFs in our universe<\/span><\/i><\/p>\n

    Financial Advisory Services based on ValuEngine research available: \u00a0 <\/b>www.ValuEngineCapital.com<\/b><\/a><\/h5>\n

    Analysis<\/b>\u00a0\u00a0<\/span><\/p>\n

      \n
    1. Of the iShares ETFs, <\/span>ESGU <\/b>has by far the highest amount of Assets Under Management and is easily the most institutionally constructed to resemble the broad stock market. And it does just that.\u00a0 On a sector weight breakdown, it is very similar, including the same 6% weight in the Energy sector.\u00a0 For all the hue and cry over underperformance vs. outperformance, the differences in price return have been relatively modest.\u00a0 On a one-month basis, <\/span>ESGU <\/b>outperformed by 0.25% while <\/span>SPY <\/b>outperformed by 0.39% on a three-month basis.\u00a0 For the 12-month period, <\/span>ESGU <\/b>registered its largest underperformance of 2.43% but outperformed on a 5-year basis by 0.27%. For the 3-year period, it is a dead heat.\u00a0 In short, <\/span>ESGU <\/b>is a way of investing in companies that follow best governance, social and environmental basis proactively while disinvesting in the laggards in each category. Of pension funds that elect to be ESG-conscious, <\/span>ESGU <\/b>and Blackrock\u2019s separately managed accounts with the same objectives account for the lion\u2019s share of these assets.\u00a0 From a fiduciary standpoint, there is no statistical evidence that <\/span>ESGU <\/b>will underperform systematically, and it is therefore prudent to avoid firms that are below the median in adopting best practices.\u00a0 There is also no evidence of outperformance that would make it imprudent not to do so.\u00a0 The relatively small periods of underperformance and outperformance tend to be cyclical.\u00a0\u00a0\u00a0<\/span><\/li>\n
    2. DSI, <\/b>sometimes referred to as \u201cthe grandfather index\u201d of SRI, has systematically underperformed AND has a higher expense ratio. This is often true of legacy ETFs.\u00a0 I have written before why it makes little sense to buy new shares of <\/span>GLD <\/b>(SSgA Gold Trust) when <\/span>GLDM <\/b>is available at less than half the fee.\u00a0 Another example applies to <\/span>SPY <\/b>which is included here for familiar comparison but systematically underperforms Vanguard\u2019s <\/span>VOO <\/b>following the same exact index by about 0.13% per year. While not identical portfolios, I would say the same about buying new shares of <\/span>DSI.\u00a0 <\/b>It\u2019s systematically more cost-effective to buy shares of <\/span>ESGU.\u00a0 <\/b>It also has a lower ValuEngine Rating of <\/span>2<\/b>, a recommendation for investors to consider selling shares of <\/span>DSI.<\/b><\/li>\n
    3. SUSL <\/b>can be thought of as a more environmentally conscious version of <\/span>ESGU <\/b>with no exposure to carbon-based fuels. Since the last two years were the best since the 1970\u2019s for companies involved in providing them, it is not surprising that aligning beliefs in net-zero-carbon long term by investing in sustainable leaders would lead to greater underperformance during the past two years.\u00a0 Since <\/span>SUSL <\/b>was started in 2019, it doesn\u2019t yet have five years of history so we cannot measure whether the underperformance of those old energy stocks from 2017 \u2013 2020 would have been strong enough to make up for its 5-year deficit relative to <\/span>SPY. <\/b>That said, sustainability goals are long-term. Spokespeople for these funds often advise that they are for long-term investors seeking to align investments with values, not for quarter-to-quarter comparisons with market performance.\u00a0\u00a0<\/span><\/li>\n
    4. The same comparison would apply to <\/span>USXF <\/b>following the MSCI USA Choice Index with even more stringent environmental and social requirements.\u00a0 Interestingly, <\/span>USXF<\/b> is the only one of these responsible investing <\/span>ETFs <\/b>rated a <\/span>4 <\/b>(buy recommendation) by ValuEngine\u2019s predictive models. Its relatively short history may concern investors looking for long-term validation.<\/span><\/li>\n
    5. Alternatively, both factor-tilted ESG ETFs show portfolio constitution risk profiles and performance histories significantly different from <\/span>SPY.\u00a0 <\/b>One difference is that neither <\/span>ESMV <\/b>nor <\/span>NULV <\/b>are market-cap weighted.\u00a0 Both also have far less allocation to technology.\u00a0 As one might expect, <\/span>ESMV,<\/b> an ESG-compliant ETF constructed to minimize price volatility, underperformed the market and the more market-like ESG ETFs during the 10+% month-long rise but outperformed during the three-month and twelve-month periods.\u00a0 Knowing that value stocks have outperformed their counterparts during the past 12 months, the significant outperformance relative to <\/span>SPY <\/b>of Nuveen\u2019s value-factor-tilted <\/span>NULV <\/b>should come as no surprise. Since value greatly underperformed growth during the 2018- 2020 period, <\/span>NULV<\/b>\u2019s poor relative performance in the three- and five-year compounded periods also makes sense.\u00a0 Most asset managers employ factor-tilted and sector ETFs tactically and understand that their returns are directly tied to market cycles.\u00a0 These two examples substantiate the fact that factor tilts will influence annual performance far more than ESG screens and ratings.<\/span><\/li>\n<\/ol>\n

      \u00a0\u00a0\u00a0<\/span>Financial Advisory Services based on ValuEngine research available: \u00a0 <\/b>www.ValuEngineCapital.com<\/b><\/a><\/p>\n

      Conclusion<\/b><\/p>\n

      ESG investing is about due diligence to weed out the firms within each industry that are laggards at adopting best management practices.\u00a0 Performance comparisons in studies I\u2019ve performed and reviewed demonstrate clearly that this type of investing will underperform during some cycles and outperform during other cycles and will generally perform in line with non-ESG-screened market indices over ten-year or longer periods of time.\u00a0\u00a0<\/span><\/p>\n

      Sustainable investing, eliminating companies engaged in practices considered bad for the environment, will be somewhat more cyclical as they are attempting to own companies committed to sustainable future leadership.\u00a0 They are more suitable for investors that can take ten-year views than investors who must be concerned with quarterly and annual performance.\u00a0 <\/span>
      \n<\/span>
      \n<\/span>Factor-tilted ESG portfolios will have significant differences quarter-to-quarter that tend to be more influenced by whether that factor is in favor than the ESG ratings used to screen out holdings and\/or included in the underlying portfolios\u2019 weighting schemes.<\/span><\/p>\n

      The political backlash against ESG in general, and Blackrock and TIAA-CREF in particular, seems to be just that, political.\u00a0 The most mystifying part to me personally is why Blackrock is the focal point for anti-ESG and pro-ESG investors.\u00a0 As SSgA, Vanguard, Goldman Sachs, American Century, etc., they offer everything their investors may want.\u00a0 This includes ESG, Sustainable and Impact investing options.\u00a0 It also includes Energy Sector and industry ETFs including one that holds the companies of oil drillers.\u00a0 It is true that CEO Larry Fink and Blackrock materials have been a bit more explicit about issues such as board diversity and a more sustainable future.\u00a0 It is also true that SSgA, TIAA-CREF and others have also done so.\u00a0 Why put a target on Blackrock?\u00a0 As far as I can see, it is only because they are the biggest that both sides have put Blackrock in such a hard place.<\/span><\/p>\n

       <\/p>\n

      By Herbert Blank<\/b><\/h5>\n
      Senior Quantitative Analyst, ValuEngine Inc<\/b><\/h5>\n
      www.ValuEngine.com<\/b><\/a><\/h5>\n
      support@ValuEngine.com<\/b><\/h5>\n
      _______________________________________________<\/b><\/h5>\n
      All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 600 ETFs have been updated on <\/b>www.ValuEngine.com<\/b><\/a><\/h5>\n
      Financial Advisory Services based on ValuEngine research available through <\/b>ValuEngine Capital Management, LLC<\/b><\/a><\/h5>\n
      Free Two Week Trial to all 5,000 plus equities covered by ValuEngine <\/b>HERE<\/b><\/a><\/h5>\n

      Subscribers log in <\/b>HERE<\/b><\/a><\/p>\n

       <\/p>\n

       <\/p>\n

       <\/p>\n","protected":false},"excerpt":{"rendered":"

      An excellent ETF.com article was posted on September 22.\u00a0 \u201cNYC Comptroller: Blackrock ESG Standards Alarming\u201d highlighted a very public effort by Brad Lander to shame Blackrock into being more environmentally conscious.\u00a0 New York City Comptroller Brad Lander demands the company bolster its climate disclosures and publish a plan that establishes its commitment to net-zero greenhouse … Read more<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[130,1,39],"tags":[2097,1829,2096,2019,1962,2100,1760,1761,1719,1731,2101,1510,1726,2098,2099,1659,63],"_links":{"self":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2990"}],"collection":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/comments?post=2990"}],"version-history":[{"count":1,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2990\/revisions"}],"predecessor-version":[{"id":2991,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2990\/revisions\/2991"}],"wp:attachment":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/media?parent=2990"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/categories?post=2990"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/tags?post=2990"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}