Just a few short years ago, ESG investing was front-and-center in the asset allocation conversation. Right or wrong, that attention drew political scrutiny in the U.S. That prompted temporary repudiation of ESG and sustainable investing styles.
Data indicates investors remained apprehensive about ESG funds in the first quarter as the group experienced outflows on a global basis. But moving beyond a short-term stretch of withdrawals, a deeper examination reveals a more vibrant long-term case for assets like the Invesco ESG Nasdaq 100 ETF (QQMG ) and the Invesco ESG Nasdaq Next Gen 100 ETF (QQJG ). Fortunately for QQMG, QQJG and U.S.-listed peers, the bulk of first-quarter selling in ESG funds occurred in Europe.
“The main driver of first-quarter outflows was a wave of modest, yet notable, redemptions in Europe—marking the first time since at least 2018 that European sustainable funds saw net outflows, even as conventional funds attracted strong inflows,” according to Rothschild & Co.
QQMG, QQJG Delivering the Goods
One of the oft-cited criticisms of ESG and sustainable investing funds is these products require investors to sacrifice returns to make values-based investment decisions. For as common as that critique is, it’s also — broadly speaking — inaccurate.
“Looking at performance, however, over the longer term, sustainable funds have outperformed their traditional counterparts. An analysis of Morningstar data shows that a hypothetical investment of USD 100 in a sustainable fund in December 2018 would have grown to USD 136 by today, compared to USD 131 for a traditional fund over the same period,” added Rothschild.
QQMG has rewarded investors this year. Year-to-date, the ETF which tracks an ESG equivalent of the Nasdaq-100 Index is up 8.58%. That’s an advantage of 60 basis point over the parent gauge. QQJG is up 4.62% this year, representing a slight advantage of the comparable non-ESG ETF.
One of the most regularly mentioned arguments about ESG investing — the ability of the style to generate compelling long-term returns — is rooted in opinion, not fact. More advisors and investors realize ESG investing doesn’t require leaving money on the table. So new life could be breathed into ETFs such as QQMG and QQJG.
“While 2024 highlighted some of the challenges inherent in sustainable investing—particularly political backlash and uneven short-term flows—it also reaffirmed the long-term case for ESG in many parts of the market. Regulatory clarity, technological innovation, and client expectations are all converging to reinforce sustainability as a key consideration of modern portfolio construction,” concluded Rothschild.
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