On the inflows front, February was another strong month for environmental, social, and governance (ESG) exchange trade funds.
Ongoing enthusiasm for ESG ETFs could be a boon for products such as the American Century Sustainable Equity ETF (ESGA ) and the American Century Sustainable Growth ETF (ESGY ), both of which are actively managed.
“ESG ETFs and ETPs listed globally gathered net inflows of US$7.55 billion during February, bringing year to date net inflows to US$17.35 Bn,” says ETF research provider ETFGI. “Year-to-date net inflows of $17.35 Bn are the second highest on record, after YTD net inflows in 2021 of $40.51 Bn."
ESGA turns two years old in July and has $125.6 million in assets under management, while stablemate ESGY turns a year old in late June. Given the relative youth of both American Century ETFs, the long-term growth outlook for each could be compelling, particularly as more investors find benefits with the marriage of active management and ESG.
“The Global ESG ETF/ETP had 981 ETFs/ETPs, with 2,814 listings, assets of $379 Bn, from 193 providers on 41 exchanges in 32 countries. Following net inflows of $7.55 Bn and market moves during the month, assets invested in ESG ETFs/ETPs listed globally decreased by 0.05% from $379.3 Bn at the end of January 2022 to $379.1 Bn at the end of February 2022,” adds ETFGI.
As the research firm notes, many of the recent inflows to ESG ETFs are going toward the 20 largest products in the category. That’s not surprising, and it’s a trend that’s repeated itself over the course of the ETF industry’s evolution. However, that’s not an indictment of ESGA and ESGY. Rather, data points like that could be signs that as asset allocators become more selective with ESG strategies, funds such as ESGA and ESGY could be on the receiving end of more inflows.
Additionally, the American Century funds could benefit because they’re actively managed, which is a potentially advantageous trait at a time when money managers are confused about ESG definitions and ratings. As active funds, ESGA and ESGY can avoid companies that are greenwashing and focus on those with legitimate ESG credentials.
“Confusion persists around what constitutes an ESG fund. According to PRI, a UN-supported initiative which seeks to understand the investment implications of ESG issues, 56% of adopters believe there is a lack of clarity in ESG definitions,” concludes ETFGI.
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