Despite more swings and volatility for global equities in March, it was another decent month of inflows into exchange-traded funds dedicated to environmental, social and governance (ESG) principles.
The increase in inflows into ESG ETFs in March is impressive considering that many of these funds languish this year as they exclude fossil fuel stocks, which are among the best performing groups in 2022. That could be a sign that advisors and investors are taking time. long-term view of ESG investing and related ETFs.
“Globally listed ETFs and ETPs saw net inflows of $7.00 billion in March, bringing year-to-date net inflows to $24.88 billion, well below the $53.48 billion in March. dollars collected at this stage last year”, according to ETFGIa London-based ETF research company.
Lower ESG flows than last year are the predictable result of weak equity markets this year. In addition, some cyclical value sectors – namely energy and materials – are doing well in 2022. Many ESG ETFs offer little or no exposure to these groups. Nevertheless, the long-term prospects for ESG investing and its applications in the ETF universe remain attractive.
“Total assets invested in ESG ETFs and ETPs increased by 3.2%, from $378 billion at the end of February 2022 to $390 billion,” added ETFGI.
Additionally, the data confirms the growth of the ESG ETF landscape in terms of population. This could be a sign that ETF issuers are sensing demand among advisors, institutional investors and retail investors, potentially indicating that there is more growth to be had in this segment.
“Since the launch of the first ESG ETF/ETP in 2002, the iShares MSCI USA ESG Select ETF, the number and diversity of products has grown steadily. There were 1,004 ESG ETFs/ETPs listed globally, with 2,895 listings, assets of $390 billion, from 193 providers listed on 40 exchanges in 32 countries,” ETFGI notes.
Some market observers see avenues for growth through the marriage of active management and ESG. This could be constructive for ETFs such as American Century Sustainable Equity ETF (ESGA) and the American Century Sustainable Growth ETF (ESGY)both actively managed.
At a time when confusion still reigns over ESG and worries about greenwashing, funds like ESGA and ESGY could bring clarity to a space that needs it.
“Confusion persists around what constitutes an ESG fund. According to the PRI, a UN-backed initiative that seeks to understand the investment implications of ESG issues, 56% of adopters believe there is a lack of clarity in ESG definitions,” ETFGI concludes. .
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