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, alongside 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.
- The impact investing sector outperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are FAN, SDG, and EDEN.
- The top holdings of these ETFs are Siemens Gamesa Renewable Energy SA, Tesla, and Novo Nordisk A/S, respectively.
There are 48 ETFs with an ESG score on ETFdb.com of 7.5 out of 10, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The impact investing sector, as measured by the S&P 500 ESG Index, has outperformed the broader market with a total return of 23.4% over the past 12 months compared to the S&P 500's total return of 19.9%. The best-performing impact investing ETF for Q4 2020, based on performance over the past year, is the First Trust ISE Global Wind Energy Index Fund (FAN). We examine the top 3 best impact investing ETFs below. All numbers in this story are as of August 19, 2020.
- Performance over 1-Year: 39.9%
- Expense Ratio: 0.62%
- Annual Dividend Yield: 1.67%
- 3-Month Average Daily Volume: 77,262
- Assets Under Management: $167.5 million
- Inception Date: June 16, 2008
- Issuer: First Trust
FAN tracks the ISE Global Wind Energy Index, an index designed to provide exposure to the performance of companies primarily engaged in the wind energy industry. This multi-cap ETF includes both pure-play wind power companies as well as companies that have broad-based operations but which still devote some attention to wind power. The fund follows a blended strategy, investing in a mix of both growth and value stocks across the wind energy sector of developed markets. The fund's top three holdings include Siemens Gamesa Renewable Energy SA (SGRE), a Spain-based provider of renewable energy services; Vestas Wind Systems A/S (VWS), a Denmark-based manufacturer of wind power plants; and Orsted A/S (ORSTED), a Denmark-based renewable energy firm.
- Performance over 1-Year: 39.7%
- Expense Ratio: 0.49%
- Annual Dividend Yield: 1.11%
- 3-Month Average Daily Volume: 12,605
- Assets Under Management: $166.6 million
- Inception Date: April 20, 2016
- Issuer: iShares
SDG tracks the MSCI ACWI Sustainable Impact Index, which seeks to provide exposure to companies that generate at least 50% of their revenues from products and services that address certain environmental and social challenges. The index also excludes companies that fail to meet minimum ESG standards. The ETF is focused on large-cap companies across developed markets and follows a blended strategy of investing in both growth and value stocks. The fund's top three holdings include Tesla Inc. (TSLA), an electric vehicle and clean energy company; NIO Inc. (NIO), a China-based electric car manufacturer; and Vestas Wind Systems.
- Performance over 1-Year: 39.4%
- Expense Ratio: 0.53%
- Annual Dividend Yield: 0.55%
- 3-Month Average Daily Volume: 27,178
- Assets Under Management: $108.3 million
- Inception Date: January 25, 2012
- Issuer: iShares
EDEN tracks the MSCI Denmark IMI 25/50 Index, which is designed to measure broad-based market exposure of Denmark's equity market. The index is comprised of 45 constituents and covers about 99% of the free float-adjusted market cap of the Danish equity market. Like the index it tracks, the ETF holds a total of 45 separate securities selected from the Danish equity universe. Although not exclusively focused on ESG stocks, the fund has a AAA MSCI ESG Rating and a MSCI ESG Quality Score of 9 out of a possible 10. The fund's top three holdings include Novo Nordisk A/S (NOVO.B:CPH), a Danish pharmaceutical company; DSV Panalpina A/S (DSV:CPH), a Denmark-based transport and logistics company; and Orsted.