While the ethical investing sector may experience a short-term slowdown in fund flows - while investors' seek safer havens during the market downturn - historically, environmental, social and governance (ESG) investments had fended off market periods when fear rules.
Thanks to institutional and retail investor demand, Matt Patsky, Boston-based CEO of Perpetual-owned Trillium Asset Management doubts the inflation-fuelled correction on global share markets will derail the global investor enthusiasm towards ethical investing.
Unlike other investment styles, Patsky reminded the market that in each of the downturns in the past, ESG funds have not witnessed significant withdrawals.
Based on Morningstar’s research, investors have more than doubled the amount of capital deployed to global ESG funds last year.
Despite growing investor cynicism for ‘greenwashing’ – where companies and funds overhype their green credentials - Brian Cahill, global head of ESG at Moody’s Investors Service, regards ESG-themed investing as an “unstoppable force”, given the level of investor demand.
Beyond the feel-good factor, research by US-based fund manager Axiom Investors, which manages the Pengana Axiom International Ethical Funds in Australia, suggests companies that improve their ESG characteristics, tend to outperform.
Then there's research by Platypus Funds Management which points to an Alpha - an excess return compared to a benchmark index - within the data.
Interestingly, companies assessed as low carbon risk by Sustainalytics, also reveals strong outperformance, a higher price-to-book value than the S&P/ASX 200, and a higher price-to-earnings ratio.
With the market trading well off its highs, now’s a good time to search for an attractive entry point into ETFs with strong ESG convictions.
Vanguard Ethically Conscious International Shares Index ETF (ASX:VESG): Tracks the return of the FTSE Developed ex Australia Choice Index.
The index measures the performance of the FTSE Developed ex Australia Index, after excluding companies involved in vice products such as adult entertainment, alcohol, gambling and tobacco, non-renewable energy, and weapons.
Net Asset value: $64.08
Management fee: 0.18%
ETF Assets under management: $622m
Number of holdings: 1703
Equity yield (dividend): 1.7%
Distributions: Quarterly: 64.027 cps
Top 2 countries: US (70.2%), Japan 7.4%
Top 2 companies: Apple and Microsoft
The ETF share price is down -8% over 12 months but has rallied 5% along with the broader market over the last week to $64.22.
BetaShares Global Sustainability Leaders (ASX: ETHI): Aims to track the performance of an index (before fees and expenses) comprising large global stocks identified as Climate Leaders, excluding companies with direct or significant exposure to fossil fuels or engaged in activities deemed inconsistent with responsible investment considerations.
Net Asset value: $10.84
Management fee: 0.49%
ETF Assets under management: $1.9bn
Number of companies: 200
12-month distribution yield: 6.1%
Top 2 countries: US (70.2%), Japan (7.4%)
Top 2 companies: Apple (5.4%) and Microsoft (4.8%)
The EFT is down – 12.73% over the last 12 months but rallied 7% along with the broader market over the last week to $10.90.
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