There are 11 GICS sectors, and just one — energy — is in the green year-to-date. Predictably, that’s a drag for many environmental, social, and governance (ESG) exchange traded funds that are either lightly allocated to energy stocks or have no exposure to the sector at all.
In brighter news, some analysts see the healthcare sector rebounding and perhaps supporting some ESG funds, including the SPDR SSGA Gender Diversity Index ETF (SHE ). SHE, which tracks the SSGA Gender Diversity Index, allocates 19.42% of its weight to healthcare equities. That’s an overweight to that sector of about 430 basis points relative to the S&P 500. SHE’s healthcare exposure could prove relevant at a trying time for standard ESG funds.
“Despite that, sustainable equity strategies held up relatively well compared to the broader market, and in some cases even fared better,” noted Morningstar analyst Lauren Solberg. “Healthcare stocks, which benefited from investors seeking out safe havens from the market turmoil, were key to the buoyancy of many ESG strategies.”
Three healthcare stocks are found among SHE’s top 10 holdings with one, Bristol-Myers Squibb (NYSE:BMY), being highlighted by Solberg.
“Healthcare stocks, which benefited from investors seeking out safe havens from the market turmoil, were key to the buoyancy of many ESG strategies. Gilead Sciences (GILD) and Bristol-Myers Squibb (BMY) earned strong returns for the quarter and both score in the top 6% of the over 400 biotechnology companies with Sustainalytics’ ESG Risk Ratings said the Morningstar analyst.
SHE has some biotech exposure by way of an allocation to Biogen (NASDAQ:BIIB), though the bulk of the ETF’s exposure to the sector comes by way of healthcare providers and blue-chip pharmaceutical companies. For example, UnitedHealth (NYSE:UNH) and Merck (NYSE:MRK), both members of the Dow Jones Industrial Average, are SHE’s largest and fourth-largest holdings, respectively, combining for north of 11% of the fund’s portfolio.
SHE’s healthcare allocation is potentially beneficial to investors at a time when many traditional ESG strategies are lagging due to heavy concentrations of growth and technology stocks. An almost 6.5% weight to consumer staples could be a positive, too. That’s almost in line with the S&P 500’s weight to that sector.
“For the second quarter, the companies that helped the index came primarily from the consumer defensive and healthcare sectors. Pharmaceutical manufacturers and non-alcoholic beverage company stocks made the biggest contributions,” concluded Solberg.
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