Socially responsible ETFs represent the confluence of two different and highly popular areas of the financial world. On one hand, socially responsible investing (sometimes abbreviated as SRI) has gained interest among investors of all types and particularly among millennials. Investors focused on SRI tend to maintain sensitivity to environmental, social, and corporate governance (ESG), selecting investments at least in part based on the extent to which they agree with a company's motives and practices.
On the other hand, exchange-traded funds (ETFs) are a multi-trillion-dollar industry with several thousand competitors. These funds, which offer investors exposure to a portfolio of securities which is managed by the fund issuer and at low cost, have grown to include all varieties of specialization. It's no surprise, then, that socially responsible ETFs have become highly popular in recent years.
Though different investors categorize socially responsible ETFs by several metrics, these funds all focus on companies which meet issuer qualifications for sustainability. Comparing socially responsible ETFs means comparing funds which focus on many different sectors, company sizes and so on. In 2018, some of these funds were more likely that others to have succumbed to external market pressures in the final weeks of the year.
Below, we'll take a look at the top-performing ETFs which have an emphasis on social responsibility. We'll compare their overall performance to one another and to the S&P Environmental & Socially Responsible Index as a benchmark, which lost 6.1% in 2018.
Tracks: Bloomberg Barclays MSCI U.S. Aggregate ESG Focus Index
Performance for 2018: +2.2% (EAGG) vs. -6.1% (benchmark)
Tracks: Bloomberg Barclays MSCI Global Green Bond Select (USD Hedged) Index
Performance for 2018: +1.1% (BGRN) vs. -6.1% (benchmark)
Tracks: Bloomberg Barclays MSCI US Corporate 1-5 Year ESG Focus Index
Performance for 2018: +0.7% (SUSB) vs. -6.1% (benchmark)
Tracks: Bloomberg Barclays MSCI US Aggregate ESG Select Index
Performance for 2018: +0.3% (NUBD) vs. -6.1% (benchmark)
Tracks: Sage ESG Intermediate Credit Index
Performance for 2018: -0.1% (GUDB) vs. -6.1% (benchmark)
iShares ESG U.S. Aggregate Bond ETF
The iShares ESG U.S. Aggregate Bond ETF (EAGG) topped the list of socially responsible ETFs for 2018, returning roughly 2.2% for the year. This fund focuses on the aggregate bond market, tracking a market value-weighted index of bonds denominated in U.S. dollars. In order to be included in EAGG's portfolio, bond issuers must meet sponsor iShares' ESG criteria, including stipulations regarding pollution, anti-competitive practices and more. Involvement in civilian firearms, tobacco and other select industries will also preclude an entity from inclusion in the portfolio.
EAGG was launched in October of 2018 and carries an expense ratio of 0.10%. It has just over $56 million in assets under management.
iShares Global Green Bond ETF
With returns of about 1.1% for 2018, the second socially responsible ETF on our list is the iShares Global Green Bond ETF (BGRN). BGRN focuses on bonds meeting MSCI's Green Bond Principles; in order to be included, bonds must be used to fund projects related to climate adaption, green building, water sustainability, energy efficiency, pollution control and similar focuses. The issuers of bonds included in the portfolio must also maintain independent procedures used to evaluate and select green projects and to report the impact of these projects on the environment.
BGRN was launched in November of 2018 and carries an expense ratio of 0.20%. It has just under $25.4 million in assets under management.
iShares ESG 1-5 Year USD Corporate Bond ETF
After EAGG and BGRN, iShares has a third bond-focused fund among the top performing SRI ETFs for 2018. The iShares ESG 1-5 Year USD Corporate Bond ETF (SUSB), like EAGG, tracks an index of bonds based on issuer sustainability practices. Unlike EAGG, however, SUSB focuses on short-term corporate debt. SUSB does not hold bonds related to companies involved in controversial weapons, tobacco, or business controversies which have occurred in the previous three-year period.
SUSB was launched in July of 2017 and carries an expense ratio of 0.12%. The fund has an asset base of about $53.8 million.
NuShares ESG U.S. Aggregate Bond ETF
An alternative to EAGG, the NuShares ESG U.S. Aggregate Bond ETF (NUBD) focuses on bonds from the Bloomberg Barclays U.S. Aggregate Bond Index. In order to select constituents, NUBD evaluates bonds based on ESG criteria. The fund includes MBS, CMBS and ABS without focusing on its ESG criteria. Bonds which have successfully passed the screening process are weighted by market value within sectors. For 2018, NUBD returned 0.3%.
NUBD was launched in September of 2017 and carries an expense ratio of 0.20%. The fund has just under $51 million its asset base.
Sage ESG Intermediate Credit ETF
The final socially responsible ETF on our list recorded overall losses for 2018. However, by declining by just 0.1%, the Sage ESG Intermediate Credit ETF (GUDB) still far outpaced our benchmark index. GUDB tracks a group of U.S. dollar-denominated, intermediate-term, investment-grade bonds. The fund's advisors created a framework to assign each issuer an ESG score, and only those issuers that place in the top third of their peer group are considered for inclusion in the portfolio.
GUDB was founded in October of 2017 and carries an expense ratio of 0.35%. The fund has assets under management of more than $14.5 million.