Sustainable ETF assets soon to be commonplace among investors
A world-leading asset manager has predicted that ethical and sustainable exchange-traded funds (ETFs) will be worth $400 billion during the next decade as they become a popular addition to investment portfolios around the world.
BlackRock believes ETFs with an eco-conscious focus will be worth 1,500% more in the next ten years. The firm estimated that sustainable ETFs equate to around $25 billion of retail investments. This is still a drop in the ocean compared with the total value of all ETF assets, which data from ETFGI believes to be $5 trillion.
Stephen Cohen, head of iShares Emea at BlackRock, believes that environmental, social and governance (ESG) “conversations” have gone up a notch among investors. Cohen believes “investors have moved from being intellectually curious about ESG to getting into a dialogue about how to build ethical portfolios”. Today, there are quite literally thousands of exchange traded funds available to buy and sell from exchanges around the world. The ability to gain exposure to emerging markets is an exciting prospect for savvy retail traders.
BlackRock’s prediction of a huge climb in sustainable ETF assets – from 3% of the total asset value of all ETFs to 21% by 2028 – comes at a time when the firm has launched six more of its own ethical and environmental ETFs. Larry Fink, BlackRock CEO, insisted that “sustainable investing is going to be at least equivalent to core investments” in the years to come. Meanwhile, Allianz Global Investors recently announced that ETF assets with a specific ESG focus accounted for €116 billion of the fund manager’s €524 billion under management.
According to Bloomberg, the number of US funds advocating ESG investing through mutual funds and ETFs approached 206 in January 2018. There is an argument to suggest that millennial financial investors are far more in tune with social responsibility, considering environmental impacts and social causes when planning their investment strategies and selecting certain companies to invest in. A report by Morgan Stanley’s Institute for Sustainable Investing discovered that US-based investors aged 20-39 are now twice as likely as the average retail investors to select sustainable assets to invest in.
What are millennial investors looking for in a sustainable ETF investment? They might look for an ETF that considers the impact of carbon emissions on the wider environment. The MSCI ACWI Low Carbon Target ETF comprises stocks of companies with a keen desire to reduce the world’s dependence on fossil fuels. Meanwhile, the GNMA Bond ETF gives sustainable investors an opportunity to buy into affordable housing via investments in residential mortgage-backed bonds supplied by the American government.
There’s no doubt that millennial investors interested in socially responsible ETFs still need to do their homework before investing. Investors must always consider the underlying holdings and exposure of companies to certain sustainable themes or projects to decide whether it is a prudent investment. Investments that encourage positive social or environmental impact at a local, regional, national or global level – whilst posting a positive set of financial results – will become more appealing as the world attempts to take care of its future.
By Heath Winters