Let’s face it — it wasn’t easy to be green last year for environmental, social, and governance or ESG investing. Last year’s selloff took its toll with a majority of ESG-focused strategies failing to beat the broader market through much of 2022. Add in the recent spike in the politicization of ESG, spreading from states like Texas and Florida to the halls of Congress, and the picture gets murkier. Still, there are reasons to look to an ESG rebound in IRBA, the iMGP RBA Responsible Global Allocation ETF (IRBA ).
Advisors know by now the value of ESG to clients – younger investors are increasingly engaging with advisors and bringing an ESG view to how they want to invest. While millennials are misconstrued to be today’s college students, with most now in their late 20s or 30s, Gen Z is not likely to differ significantly in valuing the environment, which recently ranked as the most important ESG issue among U.S. workers in a survey of human resources data.
Is ESG poised for a comeback? There are reasons to believe – from a macro perspective, climate challenges aren’t going anywhere, in fact, they’re worsening. Europe’s hot winter has taken its toll, and Russia’s divorce from the European market has spurred on the continent’s drive towards renewable energy sources.
ESG accounted for 65% of all flows in European ETFs in 2022, suggesting that the U.S. doldrums for ESG investing have indeed been hampered by politics, at least in part. Institutional investors in the U.S., meanwhile, are looking to up their allocation not ESG products – 81% of them, in fact.
Finding the right strategy to offer clients a sustainable set of exposures with a strong investment thesis becomes the key task, and that’s where IRBA comes in. IRBA leverages the Richard Bernstein Advisors (RBA) investment approach, an ETF of ETFs that invests according to the profits cycle in sustainable ETFs. The profits cycle takes a look at which sectors do well when profits accelerate or decelerate, also considering factors like sentiment and liquidity.
IRBA charges 69 basis points for its active approach, and with more than a year of operation under its belt, it’s managed to outperform its ETF Database Category Average and its Factset Segment Average. For those investors looking for a fundamentals-driven ETF that avoids stock picking and instead looks to profits, an ESG rebound in IRBA could be one idea to play around with in the weeks and months ahead.
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