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 outperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are FAN, EDEN, and GRID.
- The top holdings of these ETFs are Northland Power Inc., class B shares of Novo Nordisk A/S, and Aptiv PLC, respectively.
There are 23 distinct impact investing ETFs that trade in the U.S. with an ESG score of 8 out of 10 or higher, 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 with a total return of 20.3% over the past 12 months compared to the S&P 500's total return of 17.9%, as of November 11, 2020. The best-performing impact investing ETF, 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 below are as of November 12, 2020.
- Performance over 1-Year: 49.4%
- Expense Ratio: 0.62%
- Annual Dividend Yield: 1.38%
- 3-Month Average Daily Volume: 181,671
- Assets Under Management: $270.1 million
- Inception Date: June 16, 2008
- Issuer: First Trust
FAN tracks the ISE Clean Edge 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 Northland Power Inc. (NPI:TSE), a Canada-based power generation company; Vestas Wind Systems A/S (VWS:CSE), a Denmark-based manufacturer of wind power plants; and Orsted A/S (ORSTED:CSE), a Denmark-based renewable energy firm.
- Performance over 1-Year: 39.4%
- Expense Ratio: 0.53%
- Annual Dividend Yield: 0.53%
- 3-Month Average Daily Volume: 30,826
- Assets Under Management: $150.5 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 an AAA MSCI ESG Rating and a MSCI ESG Quality Score of 8.9 out of a possible 10. The fund's top three holdings include class B shares of Novo Nordisk A/S (NOVO.B:CSE), a Danish pharmaceutical company; DSV Panalpina A/S (DSV:CSE), a Denmark-based transport and logistics company; and Vestas Wind Systems.
- Performance over 1-Year: 36.9%
- Expense Ratio: 0.70%
- Annual Dividend Yield: 0.69%
- 3-Month Average Daily Volume: 11,577
- Assets Under Management: $81.0 million
- Inception Date: November 16, 2009
- Issuer: First Trust
GRID tracks the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index, which is designed to gauge the performance of the grid and electric energy infrastructure sector, particularly the smart grid infrastructure sector. The ETF provides exposure to companies engaged in maintaining and operating the electric grid, electric meters and devices, networks, energy storage and management, and enabling software used by the smart grid infrastructure sector. The fund holds stocks across the market-cap spectrum and follows a blended strategy of investing in a mix of value and growth stocks. The fund's top three holdings include Aptiv PLC (APTV), an Ireland-based manufacturer of vehicle components; Schneider Electric SE (SU:PAR), a France-based manufacturer of electrical power products; and Eaton Corp. PLC (ETN), a provider of power management solutions with corporate headquarters in Ireland and operational headquarters in the U.S.
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