A growing number of investors are placing billions of dollars into socially responsible impact investing funds, which are also known as Environmental, Social, and Governance (ESG) funds. These portfolios select stocks based on a company's ESG practices, along with more traditional financial measures. This has spawned a new family of exchange-traded funds (ETFs) that focus on investing criteria for the social good. These relatively new ETFs allow investors to achieve diversification while owning companies that follow specific ESG criteria.
- Impact investing securities outperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are FAN, AIA, and GRID.
- The top holdings of these ETFs are Siemens Gamesa Renewable Energy S.A., Tencent Holdings Ltd., and Aptiv PLC, respectively.
There are 16 distinct impact investing ETFs that trade in the U.S. with an ESG score of 8 out of 10 or higher, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). Impact investing securities, as measured by the S&P 500 ESG Index, have outperformed the broader market with a total return of 20.4% over the past 12 months compared to the S&P 500's total return of 19.7%, as of February 9, 2021. The best-performing impact investing ETF, based on performance over the past year, is the First Trust ISE Global Wind Energy Index Fund (FAN). We examine the best 3 impact investing ETFs below. All numbers below are as of February 10, 2021.
First Trust ISE Global Wind Energy Index Fund (FAN)
- Performance over 1-Year: 61.2%
- Expense Ratio: 0.62%
- Annual Dividend Yield: 0.80%
- 3-Month Average Daily Volume: 323,898
- Assets Under Management: $483.6 million
- Inception Date: June 16, 2008
- Issuer: First Trust
FAN tracks the ISE Clean Edge Global Wind Energy Index, an index designed to provide exposure to the performance of companies primarily engaged in the wind energy industry. This multi-cap ETF includes both pure-play wind power companies as well as companies that have broad-based operations but which still devote some attention to wind power. The fund follows a blended strategy, investing in a mix of both growth and value stocks across the wind energy sector of developed markets. The fund's top three holdings include Siemens Gamesa Renewable Energy S.A. (SGRE:MCE), a provider of wind turbines and related maintenance services; Northland Power Inc. (NPI:TSE), a Canada-based power generation company; and Vestas Wind Systems A/S (VWS:CSE), a Denmark-based manufacturer of wind power plants.
iShares S&P Asia ETF (AIA)
- Performance over 1-Year: 54.7%
- Expense Ratio: 0.50%
- Annual Dividend Yield: 0.98%
- 3-Month Average Daily Volume: 272,479
- Assets Under Management: $3.1 billion
- Inception Date: November 13, 2007
- Issuer: iShares
AIA tracks the S&P Asia 50 Index, which gauges the performance of 53 leading companies from China and the Four Asian Tigers: Hong Kong, South Korea, Singapore, and Taiwan. The ETF provides exposure to large, established companies across these Asian economies. The majority of companies that comprise the fund operate in the information technology, financials, and communication sectors. The fund follows a blended strategy, investing in a mix of value and growth stocks of large-cap companies. Its top three holdings include Tencent Holdings Ltd. (700:HKG), a China-based provider of e-commerce, online financial, mobile gaming, and other Internet services; Taiwan Semiconductor Manufacturing Co. Ltd. (2330:TAI), a Taiwan-based multinational semiconductor contract manufacturing and design company; and Samsung Electronics Co. Ltd. (005930:KRX), a South Korea-based multinational manufacturer of consumer and industrial electronics.
First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID)
- Performance over 1-Year: 52.2%
- Expense Ratio: 0.70%
- Annual Dividend Yield: 0.64%
- 3-Month Average Daily Volume: 34,875
- Assets Under Management: $198.2 million
- Inception Date: November 16, 2009
- Issuer: First Trust
GRID tracks the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index, which is designed to gauge the performance of the grid and electric energy infrastructure sector, particularly the smart grid infrastructure sector. The ETF provides exposure to companies engaged in maintaining and operating the electric grid, electric meters and devices, networks, energy storage and management, and enabling software used by the smart grid infrastructure sector. It follows a blended strategy of investing in a mix of growth and value stocks of various market caps. The fund's top three holdings include Aptiv PLC (APTV), an Ireland-based manufacturer of vehicle components; Johnson Controls International PLC (JCI), an Ireland-based multinational provider of building products and technology solutions; and ABB Ltd. (ABBN:SWX), a Switzerland-based developer and provider of power and automation technologies.
The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
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