Sustainability 2 - ADOBE
ESG

Invesco Launches New ESG ETFs Tracking the Nasdaq-100 ESG and Nasdaq Next Generation 100 ESG Indexes

Environmental, Social and Governance (ESG) investing has reached unprecedented heights. Responding to this trend, Invesco just listed new ESG ETFs based on the Nasdaq-100 ESG Index™ and Nasdaq Next Generation 100 ESG Index™.

Environmental, Social and Governance (ESG) investing has reached unprecedented heights. ESG assets are on track to reach $53 trillion by 2025, representing more than one-third of the US$140.5 trillion in projected total assets under management. Moreover, ESG assets are forecasted to reach $37.8 trillion by year-end 2021, rising from $30.6 trillion in 2018 and $22.8 trillion in 2016. Europe accounts for half of global ESG assets, but the U.S. has the strongest expansion in 2021 and may dominate the category starting in 2022.1 

ETFs are a popular way for investors to gain exposure to several individual stocks without having to take positions on an individual basis. They are convenient because they trade throughout the day, like stocks, and they are often more cost effective compared to mutual funds. Many investors are now leaning toward ETFs with an ESG overlay. The total global assets in ETFs and ETPs reached US$9.3 trillion as of September 30, 2021, compared to US$426 billion in 2005.2 Further, as of the end of October 2021, there was US$231 billion in global ESG ETF assets.3 

Responding to this trend, Invesco just listed new ESG ETFs based on the Nasdaq-100 ESG Index™ and Nasdaq Next Generation 100 ESG Index™. For the first time, investors can access many of the top Nasdaq-listed companies from the Nasdaq-100® and the Nasdaq Next Generation 100 Index™ with a tilt in exposure toward personal values.

Two new ETFs launched on October 27, 2021: the Invesco ESG Nasdaq-100 ETF (Nasdaq: QQMG) and the Invesco ESG Nasdaq Next Gen 100 ETF (Nasdaq: QQJG). These investment products expanded the Invesco QQQ Innovation Suite to include a total of six products in the U.S. On the same date, Invesco launched the Nasdaq-100 ESG UCITS ETF on three exchanges in Europe.

“At Nasdaq, we have been working closely with clients such as Invesco to develop a range of index offerings in the ESG investing landscape,” says Cameron Lilja, Global Head of Index Research and Development at Nasdaq. “As a result of these new global launches, Invesco now offers additional ways for investors to diversify their portfolios while still investing in the large- and mid-cap equity spaces.” 

A more ESG-friendly index

Although the Nasdaq-100 is most closely connected with technology, about half of the index constituents come from other industries. Many of the companies consistently have a higher dollar spend on research and development. For this reason, they are often well-positioned to capitalize on transformative, long-term themes in the market, such as the technology driving clean energy and sustainable resources.

The Nasdaq Next Generation 100 Index measures the performance of the next generation of Nasdaq-listed non-financial companies; that is, the largest 100 securities outside of the Nasdaq-100. They are the next generation of innovators on the world stage. 

The constituents of both parent indexes are filtered through a set of criteria utilizing Sustainalytics’ ESG data, excluding those companies that do not pass the rules laid out in the index methodologies. The indexes modify eligible company weights from their respective benchmarks based on how effectively they are managing ESG risk, rewarding those with a lower risk.

“Through this framework, six companies in the Nasdaq-100 Index and 10 companies in the Nasdaq Next Generation 100 Index have been removed,” Efram Slen, Global Head of Index Research at Nasdaq, explains. “All of the remaining companies have been reweighted, resulting in an even stronger ESG-tilted composition than the parent indexes.” 

It is also worth noting that the core indexes and the ESG indexes have different reconstitution schedules. The Nasdaq-100 and Nasdaq Next Generation 100 Indexes are reconstituted annually each December. The Nasdaq-100 ESG Index and Nasdaq Next Generation 100 ESG Index are reconstituted quarterly in March, June, September and December, at which time the ESG characteristics of all issuers are reviewed. Securities removed from the parent indexes outside of a reconstitution are removed from the ESG versions of their indexes and are not replaced.

Investors are increasingly drawn toward thematic ETFs, which target stocks positioned to benefit from potential shifts in technology, society, the environment and demographics over time. ESG has been a hot area for the last several years, and interest is only growing given the focus on promoting clean energy and climate goals. Ultimately, these new Invesco ESG ETFs provide investors with an opportunity to invest in large- and mid-cap companies that place a high priority on sustainability to preserve our planet and achieve social good. 

Some securities in QQMG include: Apple (AAPL), Adobe (ADBE), Kraft Heinz (KHC), Intuit (INTU), Lululemon (LULU)

Some of the securities in QQJG include: Fortinet (FTNT), Zscaler (ZS), Zebra Technologies (ZBRA), Old Dominion (ODFL), Datadog (DDOG), Etsy (ETSY)

Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

© 2021. Nasdaq, Inc. All Rights Reserved.

1. Source: Bloomberg, https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by-2025-a-third-of-global-aum/

2. Source: EFTGI

3. Source: FactSet

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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