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 portfolios select stocks based on a company’s ESG practices, along with more traditional financial measures.
This has spawned a new family of exchange-traded funds (ETFs) that focus on investing criteria for the social good. These relatively new ETFs allow investors to achieve diversification while owning companies that follow specific ESG criteria.
- Impact investing securities have outperformed the broader market over the past year.
- The impact investing exchange-traded funds (ETFs) with the best one-year trailing total returns are BBCA, EWC, and XLK.
- The top holding of the first two of these funds is Royal Bank of Canada, and the top holding of the third is Apple Inc.
There are 43 distinct impact investing ETFs that trade in the United States with an ESG score of 9.5 or higher out of 10 from ETF Database, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). Impact investing securities, as measured by the S&P 500 ESG Index, have outperformed the broader market over the past year. The index has provided a total return of 15.9% compared with the S&P 500’s total return of 12.5%, as of April 5, 2022. The best-performing impact investing ETF, based on performance over the past year, is the JPMorgan BetaBuilders Canada ETF (BBCA).
We examine the best three impact investing ETFs below. These ETFs are ones that have a high ranking according to ETF Database's ESG metrics, not one's that explicitly have an ESG goal in their prospectus. All numbers below are as of April 5, 2022.
- Performance Over One-Year: 18.0%
- Expense Ratio: 0.19%
- Annual Dividend Yield: 1.65%
- Three-Month Average Daily Volume: 292,927
- Assets Under Management: $7.0 billion
- Inception Date: Aug. 7, 2018
- Issuer: JPMorgan Chase
BBCA seeks to track the Morningstar Canada Target Market Exposure Index, a free-float adjusted index of stocks traded primarily on the Toronto Stock Exchange. The multi-cap fund focuses on a blend of both value and growth stocks. The fund allocates over 36% of its portfolio to financials stocks, followed by energy, industrials and materials.
The top holdings of BBCA include Royal Bank of Canada (RY), Toronto-Dominion Bank (TD), and Enbridge Inc. (ENB). The first two of these are Canadian multinational financial services corporations, and the third is a Canadian international natural gas distribution and pipeline company.
- Performance Over One-Year: 16.8%
- Expense Ratio: 0.50%
- Annual Dividend Yield: 1.57%
- Three-Month Average Daily Volume: 7,941,779
- Assets Under Management: $5.0 billion
- Inception Date: March 12, 1996
- Issuer: BlackRock Financial Management
EWC targets the MSCI Canada Custom Capped Index, an index of large and mid-sized companies trading in the Canadian stock market. Financials make up more than 36% of holdings, followed by energy, materials, and industrials stocks. EWC is strongly weighted toward a small number of companies, with the top 10 holdings receiving over 45% of portfolio allocation.
The top holdings of EWC include Royal Bank of Canada, Toronto-Dominion Bank, and Enbridge Inc.
- Performance Over One-Year: 12.5%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 0.67%
- Three-Month Average Daily Volume: 14,098,417
- Assets Under Management: $46.1 billion
- Inception Date: Dec. 16, 1998
- Issuer: State Street
XLK targets the Technology Select Sector Index and is broadly representative of the technology sector of the S&P 500. The fund focuses on companies involved in technology hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; and a variety of related services. Software companies represent the largest portion of the portfolio at just over a third, followed by technology hardware, storage, and peripherals, and semiconductors and semiconductor equipment stocks.
XLK is highly concentrated in the top holdings, with the top two positions accounting for more than 45% of the portfolio. The top three holdings of the fund include Apple Inc. (AAPL), Microsoft Corp. (MSFT), and NVIDIA Corp. (NVDA). The first two of these are major technology conglomerates, and the third is a chip and graphics processing unit manufacturer.
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