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There’s no denying that advisors and investors are flocking to environmental, social, and governance (ESG) strategies, including exchange traded funds. However, the more complex these products are, the more put off market participants are likely to be.
That’s one way of saying that the more easily understood an ESG ETF is, the more likely it is to gain attention and potentially assets from money managers and investors. The Invesco ESG S&P Equal Weight Fund (RSPE) is a prime example of an ESG fund with an easy-to-convey methodology.
At its core, RSPE is the ESG counterpart to the Invesco S&P 500 Equal Weight ETF (RSP), which is royalty among equal-weight ETFs. RSPE’s simplicity is relevant for myriad reasons.
“One thing is certain, financial professionals must be able to effectively introduce and talk about sustainable investing with clients. This is no easy task, as sustainable investing is multidimensional, it has novel nomenclature, and it lacks industry-level consensus around its core features,” says Morningstar analyst Samantha Lamas.
Extending the simplicity conversation, RSPE follows the S&P 500 Equal Weight ESG Leaders Select Index, which is the ESG equivalent of the S&P 500 Equal Weight Index, RSP’s underlying benchmark. By applying ESG mandates, RSPE’s index significantly trims the S&P 500 from more than 500 stocks to the 182 residing in the equal-weight ESG fund.
RSPE, which debuted last year, could be a growth story because its simplicity could be appealing to a broader audience of investors than more nuanced ESG funds.
“Given the multiple approaches available regarding sustainable investing, many investors may not completely understand all of the ESG strategies at their disposal. Practically speaking, this means that many investors may have a weakly held preference regarding sustainable investing—one that can change, either positively or negatively, upon learning more about it,” adds Morningstar’s Lamas.
Another problem that old guard ESG ETFs encounter with a more savvy generation of investors is the point that overweighting tech is a foundation to achieving ESG prowess. RSPE dispels that notion by allocating just 15.12% of its weight to tech stocks.
Bottom line: RSPE’s status as an approachable ESG ETF could be a catalyst for the fund from a growth perspective going forward.
“Given the promise and wide-reaching benefits of sustainable investing, many investors may be interested in all it has to offer. Also, though it’s impossible to ignore sustainable investing’s growing popularity in the finance industry, we must acknowledge that it may still be a novel topic for many investors, one they may be interested in after learning more about it,” concludes Lamas.
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