The top holdings of many ESG funds may be surprisingly well known.
While these strategies take into account a company’s environmental, social and governance factors, these funds still aim to invest in top performers across all industry groups, explained Arne Noack of DWS Group.
“The idea is not to be overly focused and pick just a handful of stocks that perform best on ESG or climate principles, but rather [to] “We still have a portfolio that is broadly similar to the economic makeup of the U.S. economy,” the company’s head of systematic investment solutions for the Americas told CNBC’s “ETF Edge” earlier this week.
Noack’s firm manages the Xtrackers MSCI USA Climate Action Equity ETF (USCA). His top holdings include Nvidia, Amazon, Microsoft, Apple, Metaplatforms and Google’s parent company alphabet – six of the “Magnificent Seven” mega-cap tech stocks that are also leading ETFs tracking the S&P 500.
ESG funds also tend to invest more heavily in technology stocks because the sector is one of the “cleaner” industries, according to former VettaFi financial futurist Dave Nadig.
“If you look at climate as just your window, you probably won’t end up owning many energy companies or miners [and] “We don’t own a lot of steel companies,” Nadig said. “So you end up with something that looks like a service. Healthcare And technologywhich is a very strong bet.”
Information technology stocks currently make up more than 30% of USCA’s allocation. according to Xtracker’s website. That’s more than double the fund’s second-largest sector allocation – 13.5% in healthcare.
But Noack believes the idea that ESG funds only invest in clean, sustainable sectors is misleading.
“There is sometimes a misconception that ESG funds cannot invest in energy companies. This is absolutely wrong. Energy is an important part of our economy,” he said.
Is ESG still relevant?
Global ESG funds saw their first quarterly net outflows on record in the fourth quarter of 2023, according to Morningstar. However, Nadig points out that while financial advisors may have moved away from recommending ESG funds to their clients, investor interest has not waned.
“[Advisors] Withdrawn. They probably won’t come back. “However, demand from individuals never really went away,” Nadig said. “What disappeared was the hot money of people who thought this was going to be a momentum play.” It’s not a momentum play. This is a long-term way to address your allocation.”
The Xtrackers MSCI USA Climate Action Equity ETF is up nearly 9% So far this year.
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2024-03-09 16:03:03
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