ESG

3 New ESG ETFs with Exciting Prospects

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This is proving to be another banner year for adoption of environmental, social and governance (ESG) exchange traded funds. Data confirm as much.

The first ESG ETF launched nearly 20 years ago and today, there are 834 globally listed ESG ETFs or exchange traded products with 2,344 listings around the world, as of the end of October. Those products have a combined $361 billion in assets under management.

“ESG ETFs and ETPs listed globally gathered net inflows of US$11.25 billion during October, bringing year-to-date net inflows to US$130.28 billion which is much higher than the US$54.91 billion gathered at this point last year,” according to ETFGI, a London-based ETF research firm.

Bottom line: Advisors and investors are expressing willingness to embrace ESG ETFs and issuers are meeting that demand with evolving and fresh product lineups. Said another way, plenty of ESG ETFs are far from old. Many are new and despite the lack of age, some are worth considering. Here are a few to evaluate.

Invesco ESG NASDAQ 100 ETF (QQMG)

The Invesco ESG NASDAQ 100 ETF certainly fits the bill as a new ESG ETF – it's just a month old. A plus for investors, particularly those new to ESG investing, is that QQMG features a straight-forward, easy-to-understand concept. Essentially, it's the ESG answer to the popular Invesco QQQ (QQQ), one of the largest ETFs in the world.

QQMG follows the Nasdaq-100 ESG Index – the ESG derivative of the widely observed Nasdaq-100 Index (NDX). As is the case with any ESG ETF worth its salt, QQMG has qualifiers for admission.

“To satisfy the ESG criteria, an issuer must not be involved in certain specific business activities, such as alcohol, cannabis, controversial weapons, gambling, military weapons, nuclear power, oil & gas, and tobacco,” according to Invesco. “Additionally, an issuer must be deemed compliant with the United Nations Global Compact principles, meet business controversy level requirements, and have an ESG Risk Rating Score that meets the requirements for inclusion in the Index.”

QQMG is even heavier on tech stocks than NDX as the new ETF devotes 62.5% of its weight to that sector. Apple (AAPLand Microsoft (MSFTcombine for over 28% of the rookie fund's roster.

VanEck Green Metals ETF (GMET)

On the surface, the VanEck Green Metals ETF doesn't scream “ESG ETF” and to be sure, it's not dedicated to that objective. However, GMET very much checks the “E” box in the ESG equation because green metals are essential for concepts such as energy storage, solar, wind and more,

“Many clean energy sources and associated applications require far more metals inputs than traditional fossil fuel-based equivalents. For example, in addition to steel, a conventional car requires copper and manganese, whereas an electric car requires more copper and more manganese than a conventional car and at least seven additional metals,” says Brandon Rakszawski, VanEck senior ETF product manager.

Green metals include cobalt, copper, lithium, manganese, nickel, and more, but besides copper, many green metals lack a robust underlying commodities market, making GMET perhaps the best avenue for investors looking to tap an unheralded part of the climate-aware investing thesis.

Invesco S&P 500 ESG Equal Weight ETF (RSPE)

The Invesco S&P 500 ESG Equal Weight ETF, like the aforementioned QQMG, is the new ESG counterpart to a popular established ETF. In this case, RSPE is the ESG answer to the Invesco S&P 500 Equal-Weight ETF (RSP) – the largest equal-weight ETF by assets.

Proving that ESG scoring can significantly trim the size of a fund's lineup, RSPE holds 185 stocks compared to the more than 500 that reside in S&P 500 index funds. RSPE, which debuted earlier this month, tracks the S&P 500 Equal Weight ESG Leaders Select Index. The index provider receives 1,000 data points from companies ranks them based on ESG scores.

“Based on this index construction, how does the S&P 500 Equal-Weight ESG Leaders Select Index perform? We can see an excess return over the S&P 500 Equal Weight Index with comparable volatility, realizing an improved risk-adjusted return over each period examined historically,” according to S&P Dow Jones Indices.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Todd Shriber

Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.

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