In the US stock market, it is difficult for active managers to generate value.
Sustainable ETFs are cost-effective, but it is a good idea to check the frequency of indicators and the risks of portfolio concentration.
ETFs are a good tool for investing in the United States at a low cost. Also for those who want to do it in a sustainable way.
In fact, the US stock market is very liquid and efficient, so it is difficult for active managers to create additional value compared to the benchmark index, by choosing individual stocks.
“Historical data shows that active managers net options in this market tend to hurt returns,” says Morningstar analyst Briegel Leitao. “This makes passive, broadly diversified, low-cost strategies the default choice for investors seeking exposure to the US stock exchange.”
ETFs are also an interesting option for investing in Wall Street in a sustainable way. Those surveyed by Morningstar’s research have positive reviews, which were recently confirmed by analysts. However, in this case, it is a good idea to check whether the ESG standards used meet their sustainability goals. The characteristics of the copied indices should also be taken into account, because there can be different baskets under similar names.
iShares MSCI USA ESG Screened ETF
For example, this iShares ETF has a file Analyst Rating It is equal to gold (as of August 17, 2022), so, according to Morningstar analysts, it is an excellent option from the point of view of its ability to produce risk-adjusted returns higher than the US stock class over time. However, the ESG مخاطر Risk Rating It is average (as of June 30, 2022).
The ETF, which tracks the vetted MSCI USA ESG index, offers exposure to a select basket of large and mid-sized US stocks. Derived from the broader world of MSCI USA Index, the portfolio was created using ESG methodologies to exclude companies operating in controversial sectors such as nuclear weapons, tobacco or thermal coal.
“In practice, only about fifty companies have been excluded from the broader world of the traditional index,” says Alan Tang, an analyst at Morningstar. “Thus, it is a light check compared to other strategies that have more stringent criteria than ESG.”
This is reflected in its Environmental, Social and Corporate Governance (ESG) risk rating, which is three globes, which is the average within the large US corporate category.
The costs, equivalent to 0.07% annually, are among the lowest when compared to sustainable alternatives and traditional US equity ETFs.
Xtrackers MSCI USA ESG ETF
This Xtrackers ETF also provides exposure to a select basket of US stocks, but the tracked index is different. This is the leaders of the MSCI USA Low Carbon SRI, which includes actions with high environmental, social and governance characteristics and current or potential low carbon intensity.
Its sustainability rating is five globes, indicating a lower risk for ESG compared to the US corporate class. “The ruling represents a clear improvement over To a Non-ESG ETF in the Xtrackers MSCI USA IndexTang said in a note dated August 17, 2022.
The standard has been created in a way that limits the risk of portfolio concentration. However, according to Morningstar analysts, these risks cannot be completely ruled out. At the time of writing, the ETF is more than 10% exposed to a single stock, Microsoft (portfolio data as of July 31, 2022, so),” continues Tang. “This is too risky (rebalancing the index in February, May, August, and November).”
The top ten covers approximately 36% of the total allocation, which is 26% higher than the traditional MSCI USA index. This may be a problem for investors aiming to have a diversified portfolio. For this reason, the analyst rating is equal to BronzeAlthough the fee boosts performance by 0.15%.”
iShares MSCI USA SRI ETF
iShares MSCI USA SRI, which has always aimed to reveal to a select world of US securities that respect some characteristics of ESG, is also a bronze medalist, but it repeats a different index than the two previous instruments.
The standard is the MSCI USA SRI Select Reduced Fossil Fuel Index. The basket is built by excluding companies operating in controversial sectors, such as arms, thermal coal, tobacco and tar sands, and selecting the best companies in each sector based on sustainability provisions.
“The methodology is designed to maintain industry neutrality with respect to the systemic risks introduced by the ESG selection process and to reduce tracking error compared to the conventional standard,” Tang said in a note dated August 17, 2022. It is inevitable, as there may not be enough qualified shares in the realm of some sectors. For example, companies like Apple and Facebook have been excluded at the time of writing; As a result, the technology sector is significantly underweight for MSCI USA. For this reason, the strategy may not fully represent the range of opportunities for investors.”
The fund has a sustainability rating of five globes, indicating low ESG risks (as of June 30, 2022).