Following a year in which environmental, social, and governance (ESG) hauled in record amounts of investor capital, some asset managers are forecasting the start of a sustainability investing revolution.
That could serve as a rising tide that lifts boats across the exchange traded funds universe, including the Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST). JUST, which follows the the JUST U.S. Large Cap Diversified Index, is outperforming the Russell 1000 Index by 150 basis points over the past year, confirming that ESG funds can be credible alpha-generating destinations for asset allocators.
In fact, Goldman Sachs Asset Management (GSAM) points out in its 2022 outlook that ESG considerations will become more relevant this year and more asset allocators could leverage ESG and sustainability to bolster returns.
“Many portfolio managers have long incorporated these considerations as part of risk management and due diligence and have further strengthened their processes as more information becomes available,” says GSAM. “As markets reflect the growing difference between companies with superior ESG ratings and those with potentially riskier business practices, it will have implications across asset classes.”
JUST is highly appropriate at a time when ESG considerations and ratings are taking on added importance because the fund is a departure from the old guard of ESG funds. JUST's index considers 145,000 data points stemming from 88 original metrics, scouring the Russell 1000 Index for companies that are superior environmental stewards and those looking to make tangible, positive differences in the social and governance departments.
Translation: Arguably more so than the first generation of ESG funds, JUST balances the often-competing objectives of doing good in the world and doing right by shareholders.
“Impact investing—investing in a company to both achieve financial returns and have a positive impact toward a specific goal—is increasingly expected by clients as the sector mature,” adds GSAM.
The 2022 case for JUST is also compelling because, amid claims of greenwashing and other thorny issues, regulators are increasing scrutiny on ESG products. For JUST, the good news in that scenario is that the ETF is what it purports to be and its approach is straightforward.
“In the US, the Department of Labor recently issued a proposed rule to make clear that plan fiduciaries may consider climate change and other ESG factors when making investment decisions and exercising shareholder rights, recognizing that ESG factors can be financially material; when they are, considering them is likely to lead to better long-term risk-adjusted returns,” concludes GSAM.
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