Amid the tidal wave of demand for environmental, social, and governance (ESG) investment strategies, ETF issuers are leading the way.
Model portfolios are a big part of that. For advisors with clients clamoring for sustainable investing strategies – and these days, plenty are doing just that – the good news is that the marriage of sustainable funds and model portfolios don’t have to pinch clients’ bottom lines with unnecessary fees. That’s important because fund fees play pivotal parts in long-term investors outcomes.
“Fees are a crucial part of any investment decision,” says Morningstar analyst Jason Kephart. “Choosing cheaper funds over more expensive ones is a reliable way to tilt the odds of better outcomes in your favor. That’s true whether you’re considering the costs of a single fund or thinking about the costs of a whole portfolio.”
While there are hundreds of ESG ETFs available today, the idea of combining these funds with model portfolios is still in its nascent stages, as there’s currently a dearth of directly investable ESG model portfolio options.
For fee-conscious advisors that want to pick and choose from the existing menu, there are nearly 20 U.S.-listed ETFs with annual expenses ratios below 0.15%. Some even drift below 0.10%.
“It’s clear that building a multi-asset portfolio with mostly intentional ESG strategies doesn’t have to come with high investment fees,” adds Kephart.
One ESG Option
Advisors looking for an established model portfolio that checks some ESG boxes may want to evaluate WisdomTree’s emerging markets multi-factor model portfolio. It’s not a dedicated ESG model portfolio, but by way of exposure to the WisdomTree Emerging Markets ex-State-Owned Enterprises ETF (XSOE ), this model portfolio checks plenty of social and governance boxes.
In developing economies, avoiding state-controlled companies not only can boosts returns but it can help investors steer clear of companies with spotty human rights records. Additionally, many emerging markets state-owned firms operate in the energy, materials, and utilities, meaning they can be environmental offenders as well. History is littered with examples of shareholders suffering at the expense of corporations with flimsy environmental reputations.
The WisdomTree model portfolio costs 0.40% per year, according to issuer data.
For more on how to implement model portfolios, visit our Model Portfolio Channel.
