The performance of environmental, social, and governance (ESG) strategies, including exchange traded funds, is leaving something to be desired this year, but a new survey suggests high-level investors are seeing the forest through the trees and remain dedicated to ESG.
A new PwC survey suggested that eight in 10 investors polled plan to boost exposure to ESG strategies over the next two years, and that by 2026 nearly $34 trillion in global assets will be directed to ESG funds and comparable vehicles.
That’s potentially encouraging news for exchange traded funds, including the SPDR MSCI USA Climate Paris Aligned ETF (NZUS ), the SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND ), the SPDR S&P 500 ESG ETF (EFIV ), and the SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG ), among others.
“Our findings reveal an AWM industry in transition. For asset managers, our analysis of ten market-defining trends stresses the urgency of moving away from ESG-orientated investments and, instead, integrating ESG principles into the heart of their purpose, strategy and investment management processes,” noted PwC.
Perhaps boding well for ETFs such as EFIV, RBND, NZUS and others is PwC’s forecast that ESG assets will account for 21.5% of all global fund assets by 2026. That’s a roughly 50% jump from current levels. It’s possible to infer from that project that plenty of investors – professional and retail – will direct capital to ESG ETFs.
ETFs, ESG and otherwise, offer investors tax benefits, and even when actively managed, they often sport lower fees than actively managed mutual funds.
For investors of all stripes, ESG ETFs could be appealing for other reasons. For example, the equity-based funds in the category are often heavy on growth stocks, which are getting drubbed this year amid rising interest rates. Looked at another way, macroeconomic forces may be creating value opportunities in the ESG space.
“With the current economic headwinds, we have seen some correction in asset prices and there is a risk of significant contraction in capital markets that would result in a further decline. This underlines the importance for asset managers and institutional investors alike to understand how to capture the shift to ESG as a counter-balance to potential portfolio underperformance as well as legacy product obsolescence,” said Olwyn Alexander, PwC global asset and wealth management leader, PwC Ireland, in the report.
Bottom line: A major wave of ESG growth is ahead, and it could favor cost-efficient funds such as EFIV, RBND, and others in that suite.
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