A Multi-Asset Strategy With ESG Can Help Mute Short-Term Volatility
Market volatility has descended back into major stock market indexes, but the coupling of environmental, social, and governance (ESG) investing and a multi-asset strategy could be what an investor needs.
The pandemic only helped the ESG investing arena to expand further, allowing for more innovative strategies. One such strategy is pairing with a multi-asset strategy in order to help mute the recent market volatility.
“Disruptive forces have accelerated secular transformation, which brings thematic investments to the fore,” said Jason Yu, head of multi-asset management, Asia at Schroders.
One of those themes is ESG, allowing for investors to not only realize gains on the back of the space's rising popularity, but to also invest in their own principles. Whether the issue at hand is climate change, social justice, or a plethora of other niches, ESG gives investors this more ethical investing option.
Furthermore, a multi-asset approach gives investors portfolio diversification among ESG options.
“With a multi-asset approach, investors can dynamically access opportunities in equities and fixed income from renewables and alternative energy sources, to meat substitutes and electric vehicles, and all the relevant supply chains involved,” added Yu.
A Pair of Options to Consider
One ETF that's worth a look is the FlexShares STOXX Global ESG Impact Index Fund (ESGG). Per the fund's description, ESGG seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the STOXX® Global ESG Select KPIs Index.
The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to ESG characteristics relative to the STOXX® Global 1800 Index, a float-adjusted market-capitalization weighted index of companies incorporated in the U.S. or in developed international markets. The fund uses the index as its starting point and then sifts through companies by weeding them out based on the following criteria:
- Companies that do not adhere to the U.N. Global Compact principles
- Companies involved in controversial weapons
- Coal miners
Investors who want to keep ESG investing in the U.S. can opt for the FlexShares STOXX US ESG Impact Index Fund (ESG), which seeks investment results that correspond generally to the STOXX® USA ESG Impact Index. The underlying index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to ESG characteristics relative to the STOXX® USA 900 Index, a float-adjusted market-capitalization weighted index of U.S.- incorporated companies.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.