Analyst Report
The FlexShares STOXX Global ESG Impact Index Fund (ESGG) tracks a proprietary STOXX index that rates companies based on environmental, social and governance factors that influence risk and return, such as workplace safety, executive compensation, and board diversity. The portfolio is weighted in favor of the best performers.
ESG (the strategy, not the ticker) is different from traditional socially-responsible investing, which typically tried to exclude bad actors and industries. Many advisers worried that this came at the expense of diversification and returns. So, today’s ESG strategies aim to be more inclusive. Instead of ignoring large swathes of the market, the goal is to maintain market-like diversification with a tilt toward the best corporate citizens. The top holdings aren’t that much different than plain-vanilla global stock funds, with holdings like Microsoft, Apple and Amazon. The difference comes down to weighting. It’s worth nothing that there are plenty of skeptics when it comes to ESG investing, and critics say ESG whitewashes a portfolio rather than driving companies to truly change their behavior.
Issuers have rolled out dozens of ESG-style funds in recent years to appeal to younger investors who are concerned about the social impact of their investments, which means FlexShares has a lot of competition — especially when it comes to price. ESGG’s management fees are on the high side, especially for investors who don’t mind buying their U.S. and international funds separately. Vanguard, for example, offers its domestic and international ESG funds at a fraction of the cost: Vanguard ESG International Stock ETF (VGSX) and Vanguard ESG U.S. Stock ETF (ESGV). Investors would do well to comparison shop.
