Following a remarkable pace of inflows in 2021, it could be difficult for environmental, social, and governance (ESG) exchange traded funds to replicate record asset-gathering in 2022, but that doesn’t mean that enthusiasm for these funds is waning.
Actually, the opposite is true, and still-strong demand for ESG ETFs is encouraging for some of the newer members of the category, including the Invesco ESG S&P Equal Weight Fund (RSPE ). RSPE came to market last November and could be a prime beneficiary of ongoing inflows to ESG ETFs are investors seek fresh approaches in this category.
Regarding market participants continuing to add capital to ESG ETFs, that’s exactly what happened in the first half of 2022.
“Environmental, Social, and Governance (ESG) ETFs and ETPs listed globally gathered net inflows of US$9.81 billion during January,” said ETFGI, a London-based ETF research firm, in a note out Monday.
Total assets under management for globally listed ESG ETFs dipped 3.2% to $379 billion in January, but that appears to be more of a symptom of declining equity markets than outflows.
“The S&P 500 decreased by 5.17% in January. Developed markets excluding the US, experienced a loss of 5.33% in January. All countries in developed markets experienced losses, with New Zealand suffering the biggest loss of 14.35%. Emerging markets decreased by 0.94% during January. Chile (up 12.44%) and Colombia (up 12.36%) gained the most, whilst Russia (down 8.74 ) and Poland (down 4.82) witnessed the largest declines,” says ETFGI founder Deborah Fuhr.
Indicating that RSPE has the potential to be considered a well-timed addition to the ESG ETF fray, this category is on a 37-month streak of adding assets.
As is often noted, more education is needed among advisors and asset allocators regarding exactly what ESG means. As ESG scoring and ratings improve, funds such as RSPE could garner more inflows. For its part, RSPE already offers investors a straightforward approach and an easy-to-understand methodology — traits that could be attractive to registered investment advisors.
“Confusion persists around what constitutes an ESG fund. According to PRI, a UN-supported initiative which seeks to understand the investment implications of ESG issues, 56% of adopters believe there is a lack of clarity in ESG definitions. ETFGI’s classification system attempts to provide greater precision, with ETFs/ETPs listed globally organised into categories, including core ESG products and theme-based groups, such as Clean/Alternative Energies and Gender Diversity,” concludes ETFGI.
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