What is a ESG ETF? ESG ETF

Increasingly, billions of dollars are being invested in socially responsible impact investing funds, also known as Environmental, Social, and Governance (ESG) funds. Let us dig deeper to know more.

What is a ESG ETF?

A growing number of investors are placing billions of dollars into socially responsible impact investing funds, which are also known as Environmental, Social, and Governance (ESG) funds.

These relatively new ETFs allow investors to achieve diversification while owning companies that follow specific ESG criteria.

Environmental, social, and governance (ESG) investing is the most important trend in finance, as investors and asset managers alike become more conscious of the impact their investments can have on the environment.

Through their rules-based and transparent approach, ETFs potentially offer investors a perfect way to gain exposure to the sustainable revolution.

However, as the number of ESG ETFs available in the European market continues to grow at a rapid rate, choosing between the different strategies is becoming a daunting task for investors.

According to data from Morningstar, there have been a record 72 ESG ETF launches in 2020, as at the end of October, 28 more than the previous record set in 2018 and up from 33 launches last year.

As a result of this rapid growth, ETF Stream has selected five ESG ETFs, incorporating ETFLogic data, to consider in portfolios.

Amundi MSCI World ESG Leaders Select UCITS ETF (SADW)

In June 2020, Amundi launched three ESG leaders ETFs that included the Amundi MSCI World ESG Leaders Select UCITS ETF (SADW).

SADW offers global exposure to mid and large-cap stocks from 23 developed countries with an ongoing charge of 0.18%. However, it is comprised of the leading stocks in terms of their ESG scores compared to their sector peers.

Using its ESG rating system, MSCI incorporates a best-in-class system by only selecting the highest scored companies which represent 50% of the market cap for each sector and region from the parent index.

Additionally, to avoid concentration risk, MSCI has enforced a 5% weighting cap so the stocks cannot exceed 5% weighting otherwise it will be reduced at each rebalance if the weighting grows as a result of outperformance. The rebalance is done on a semi-annual basis.

While it is comprised of the leading ESG scored stocks, SADW excludes companies involved in thermal coal, tobacco, alcohol, gambling, nuclear power and weapons, conventional weapons, controversial weapons and civilian firearms.

Top 5 holdingsTop 5 sectorsTop 5 countries
Microsoft (5.1%)Information Technology (19.9%US (65.4%)
Alphabet (Class A and C) (4.4%)Health Care (14.1%)Japan (9.1%)
Procter Gamble (1.6%)Financials (12.6%)Canada (3.6%)
NVIDIA (1.5%)Consumer Discretionary (12.5%France (3.5%)
Visa (1.4%)Industrials (11%)UK (2.9%)

SADW launched in June 2020 and therefore does not have a long history of performance. Its benchmark, however, has outperformed MSCI World all one, three and five-year durations, as at the end of October, by 0.71%, 0.94% and 0.47%, respectively.