Inside a Popular Sustainable ETF

MarketsETF Trends

Within the realm of exchange traded funds adhering to environmental, social and governance (ESG) investing principles, funds focusing on sustainable investing are increasingly popular. That group includes the iShares MSCI USA ESG Select ETF (NYSEARCA: SUSA).

Many advisors and investors are concerned about fully implementing their values within portfolios, but there may be a more appealing way to start down the environmental, social and governance, or ESG, path through exchange traded funds. SUSA tracks the MSCI USA ESG Select Index.

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“Sustainable investing combines traditional investment approaches with environmental, social and governance insights to help manage risk and enhance long term return,” said BlackRock in a recent note. “Sustainable investing is not a peripheral strategy – it’s about recognizing that the companies addressing humanity’s biggest challenges are often those that are well-positioned to grow.”

Environmental assessment categories can include a company’s impact on climate change, natural resource use, and waste management and emission management. Social evaluation categories can include a company’s relations with employees and suppliers, product safety and sourcing practices.

The sustainable investing theme has quickly gained momentum. As of 2016, ESG-focused strategies held $8.1 trillion of the $40.3 trillion in professionally managed assets in the U.S. Of those ESG assets, $2.6 trillion were invested in retail-focused funds, compared to $1.01 trillion in 2012 and $202 billion in 2007.

“The evidence is mounting that companies that effectively manage sustainability-related issues have exhibited lower risk, that the management of material sustainability considerations has been associated with outperformance over time, and that these factors may play a role in long-term performance as well,” according to BlackRock.

SUSA holds nearly 100 stocks, almost 28% of which hail from the technology sector. Industrial and healthcare names combine for a quarter of the fund’s weight while financial services and consumer staples stocks combine for 22%.

“Companies that reduce their carbon footprints the most have historically outperformed peers in the stock market. Greater carbon efficiency may signal operational excellence. It may also help protect companies from physical and regulatory risks,” according to BlackRock.

SUSA charges 0.5% per year, or $50 on a $10,000 investment. The ETF’s three-year standard deviation is 10.51%.

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