Meet the newest ETF factor with expansion potential: Environmental, Social & Governance (ESG), or Impact Investing

Initially coined SRI (Socially Responsible Investing), ESG / Impact investing is growing beyond just social issues to include how companies treat non-shareholder stakeholders, and overall corporate governance. This trend began in the institutional world and is now penetrating the retail space at an increasing pace! ESG investing is much more popular internationally, and the US is rapidly playing catch up.

Assets incorporating ESG Criteria in the US have grown from $1.4 trillion in 2012 to over $8 trillion in 2016. The percentage of these assets coming from the retail space grew from 13.1% in 2014, to 25.7% in 2016 (The Forum for Sustainable and Responsible Investment, www.ussif.org). Below is a chart of the number of current ETF options available in the ESG space as they became available.

NUMBER OF ESG ETFs

Until June 2012, there were only 2 options, and as recently as 2 years ago, only 7.  In the last 24 months 35 new ETF products have come to market. Initial offerings were focused on broad US equity.  Additional offerings came to market with single factor focus (women in leadership, return on disability, low carbon).

In the last 2 years, we’ve seen an explosion of offerings, filling out necessary asset classes to make a fully constructed ESG ETF portfolio feasible. Emerging market options began to pop up, as did smart beta overlays on ESG investing, style box investment options,  and as recent as this year, the first offerings in the fixed income space became available.
There are now four options, with a 5th coming this week. Cboe Global Markets has teamed up with Sage Advisory to launch the Sage ESG Intermediate Credit ETF (GUDB), blending ESG issues with broad fixed income diversification and solid risk management in a passive ETF wrapper.

TETF INDEX Vs. LEADING FINANCIAL INDEXES 

INDEX PERFORMANCE DATA

UNDERLYING TOP/BOTTOM 10 HOLDINGS PERFORMANCE 

ETFs VS MUTUAL FUNDS

ESTIMATED SALES GROWTH BY SECTOR

ESTIMATED EPS GROWTH BY SECTOR

US ETFs FLOWS
Domestic Vs International Equity Flows [Quarterly in Billions]

 US ETFs FLOWS
Flows by Asset Class [Quarterly in Billions]