The theme of environmental, social and governance (ESG) is a one that likely will not go away anytime soon. Some investors may jokingly refer to it as “do-gooder” investing, but the reality is that this theme is absorbing so many new investment dollars that the trend simply cannot be ignored, even by the most cynical of investors. Many mutual funds and exchange trade funds (ETFs) are tracking the ESG theme, and many of them have direct overlaps because they follow the same underlying indexes.
Now two more ETFs are launching to track the ESG theme. IndexIQ has partnered with Candriam to launch the IQ Candriam ESG US Equity ETF (ticker is IQSU) and the IQ Candriam ESG International Equity ETF (ticker, IQSI). The low fee structure is just nine basis points for the U.S. fund and just 15 basis points for the international one. The domestic ETF will track the IQ Candriam ESG U.S. Equity Index, and the international ETF will track the IQ Candriam ESG International Equity Index.
According to the release, these two ETFs track indexes that offer broad market exposure to large-cap and medium-cap companies that satisfy ESG criteria developed by Candriam. These are both tied to New York Life Investments, and the name stands for “conviction and responsibility in asset management.”
The group launched its first sustainable funds in 1996, and it was an early signer of the U.N. Principles for Responsible Investment back in 2006.
Candriam’s proprietary ESG evaluation process is shown to include a dedicated ESG research team, focusing on either absolute terms or relative to peers inside each sector. Its goal is to improve corporate disclosures on ESG topics or to foster better corporate practices on ESG matters and applying sustainable investing criteria across the firm.
24/7 Wall St. has pointed out that the top-themed ESG stocks will come increasingly under investment focus and previously have shown that ESG investing’s narrow use of indexes is problematic, with their overlaps and redundancies.
At the time of each index rebalance, no single index component may have a weighting greater than 10% to prevent excessive concentration. At this stage and on a static basis, that would require either Microsoft or Apple to rally more than 50% from the current prices for it to become a problem. These are the top holdings by weighting inside the IQ Candriam ESG U.S. Equity Index:
- Microsoft, 6.38%
- Apple, 6.17%
- Amazon.com, 3.97%
- Alphabet/C, 2.24%
- Alphabet/A, 2.21%
- Johnson & Johnson, 2.04%
- Visa 1.75%
- Procter & Gamble, 1.68%
- Berkshire Hathaway/B, 1.62%
- AT&T, 1.53%
- Walt Disney, 1.45%
- Mastercard, 1.44%
- Intel, 1.4%
- Verizon, 1.38%
- Home Depot, 1.29%
- Merck, 1.25%
- Wells Fargo, 1.2%
- Coca-Cola 1.13%
- Cisco Systems, 1.07%
- PepsiCo, 1.04%
- Citigroup, 0.96%
- Adobe, 0.85%
- Medtronic, 0.83%
- McDonald’s, 0.82%
- Abbott Laboratories, 0.82%
David Czupryna, Head of ESG Client Portfolio Management at Candriam, said of the two launches:
As U.S. investors become increasingly interested in sustainable investing, high-quality ESG strategies with the potential to generate alpha are at a premium. We are excited to expand our existing partnership with IndexIQ with IQSU and IQSI, which incorporate CANDRIAM’s award-winning ESG criteria to meet the needs of American investors.
Sal Bruno, Chief Investment Officer at IndexIQ, said of the launches:
We are thrilled to incorporate CANDRIAM’s ESG criteria in our U.S. ETFs for the first time. Partnering with CANDRIAM enables us to provide core ESG products that leverage their award-winning ESG research and data while offering broad market exposure, without forgoing any sectors, in a cost-effective and tax-sensitive way. We believe this diversification as well as the competitive fee levels will be valuable to our clients, allowing us to meet their return objectives while offering investment strategies that align with their values.
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