Socially Responsible ETF Funds Attract Investors in Record Numbers

ESG Sector Doubles in 2020

So far in 2020, investors in the US have allocated $27.4 billion to exchange-traded funds that focus on socially responsible practices. The trend has doubled the size of the environmental, social, and corporate governance sector, also known as ESG. As investors look ahead, many expect the Biden administration could introduce climate change legislation which would help socially conscious funds gain even more attention.

This year asset managers like BlackRock (BLK) have launched 31 funds related to socially responsible investing. There are currently over 100 socially conscious ETF products on the market in the US, and that number is likely to climb.

Landscape Reflects COVID Changes

Critics had previously questioned the staying power of ESG funds, but the current trend suggests socially conscious funds are here to stay. That endurance has to do with stay-at-home stocks that have performed well during the coronavirus pandemic. For example, the Nuveen ESG Mid-Cap Growth (NUMG) ETF includes holdings like Twilio and Slack Technologies. Those companies’ shares have swelled this year, bringing the whole ETF up 42%. For comparison, the S&P 500 has grown 14% this year.

During the coronavirus pandemic, investors have been particularly interested in high-performing technology stocks. Those technology companies also tend to be likely candidates for ESG funds. For example, Alternative energy producer Plug Power’s (PLUG) shares have climbed eightfold this year.

ESG Stocks to Watch in 2021

Morgan Stanley (MS) strategists said they will be watching several ESG companies as socially conscious investing gains traction. These firms include the global energy company AES (AES), which is focusing on renewables and storage, and Aptiv (APTV), an automobile parts company which is focusing on creating products for electric vehicles.

The strategists also said they would be eying stocks involved in sustainable consumption. As the world’s governments start to think about how food and agriculture can adopt more sustainable practices, analysts suggest agriculture companies like Deere (DE), CJ CheilJedang, and Bluestar Adisseo could get more attention. Companies like Ball Corp (BLL) and SCG Packaging could be important in developing alternatives to single-use plastics and excess packaging on food products.

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