An obvious result of growth stocks faltering this year is that many environmental, social, and governance (ESG) exchange traded funds are feeling more heat than usual.
The Invesco ESG NASDAQ Next Gen 100 ETF (QQJG) is an example of that scenario, but before eschewing ESG for good, investors ought to consider what’s happening in the broader market environment. Notably, inflation is high, forcing the Federal Reserve to raise interest rates. Aggressive rate hikes are punishing growth stocks.
There’s no limit to the pain when factoring in market capitalization. In fact, smaller growth stocks are taking it on the chin. QQJG follows the the Nasdaq Next Generation 100 ESG Index — the ESG offshoot of the Nasdaq Next Generation 100 Index. As such, the Invesco fund is home to plenty of mid-cap and smaller large-cap growth fare.
Long-term investors don’t need to stretch to find good news, and that good news pertains to both growth strategies at large and ESG investing.
“Many ESG funds have a natural tilt toward growth—some 95% of all ESG stock mutual funds and 90% of ETFs are categorized as either blend or growth portfolios—and have benefited as growth stocks fueled the longest bull market in history between 2009 and the recent market rout,” reported Karen Hube for Barron’s.
Bolstering the case for QQJG are the points that long-term fundamentals for growth stocks, broadly speaking, remain attractive, and the case for ESG as an investing style isn’t going to disappear simply because of one rough year.
“Using ESG metrics can lead to a better long-term investment because you’re not only looking at more risk factors—climate risk, social risk—but at factors that create opportunities, like how many women are on the board or in the C-suite,” said Peter Krull, CEO of Earth Equity Advisors in Asheville, N.C., in an interview with Barron’s. “In times like now, when markets are down and growth is down, is when to accumulate shares, because the tech and innovation will lead us into a new economy.”
Bottom line: Growth stocks, including those with strong ESG credentials, are discounted today, but that situation may not last long. Innovative growth stocks and ESG -- QQJG’s bread and butter -- aren’t going anywhere.
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