4 ETFs for Socially Responsible Investors to Consider Adding to Their Portfolio

With rising awareness about environmental and social issues, sustainability-focused stocks might gain significant investor attention in the upcoming years. So, investors looking to cash in on the growth of the sustainability-focused investing trend in a relatively less risky way could invest in quality ETFs such as the iShares ESG Aware MSCI EM ETF (ESGE), iShares ESG Aware MSCI EAFE ETF (ESGD), Vanguard ESG U.S. Stock ETF (ESGV), and Xtrackers MSCI USA ESG Leaders Equity ETF (USSG).

With growing climate change concerns and the rising need for socially responsible business dealing, environmental, social, and governance (ESG) focused investing has been gaining traction. According to a Morningstar report, sustainable funds’ total assets rose 19% to nearly $2 trillion in the first quarter, marking the hitting of a record high for the fourth quarter in a row.

Last month, S&P Dow Jones CEO, Dan Drape, said that ESG-based investing is one of their biggest growth opportunities. Moreover, according to BlackRock, Inc.’s (BLK) head of iShares Americas, Armando Senra, ESG investments could become a $1 trillion category by 2030.

While it could be difficult to select the best socially responsible stock in the absence of organized information in this regard, investors looking to cash in on the ESG investing trend in a relatively less risky way could bet on quality ESG ETFs, including the iShares ESG Aware MSCI EM ETF (ESGE), iShares ESG Aware MSCI EAFE ETF (ESGD), Vanguard ESG U.S. Stock ETF (ESGV), and Xtrackers MSCI USA ESG Leaders Equity ETF (USSG).

iShares ESG Aware MSCI EM ETF (ESGE)

Launched by BLK, ESGE invests in socially conscious companies in their business dealings and directly promotes environmental responsibility. Using a representative sampling technique, it seeks to track the MSCI Emerging Markets Extended ESG Focus Index's performance.

With $7.21 billion in AUM, ESGE’s top holding is Taiwan Semiconductor Manufacturing Co., Ltd. (TSM), which has a 7.20% weighting in the fund, followed by Tencent Holdings Ltd. (TCEHY) at 4.59% and Samsung Electronics Co., Ltd. at 3.89%. It has an expense ratio of 0.25%, lower than the category average of 0.50%.

ESGE has an ESG score of 7.76 out of 10. It pays an annual dividend of $0.56, which yields 1.31% on the prevailing price. The ETF’s average four-year dividend yield stands at 2.47%. ESGE has gained 20.8% over the past year and 5.8% over the past nine months.

ESGE’s POWR Ratings are consistent with its growth outlook. It has an overall B rating, which equates to Buy in our proprietary ratings system. In addition, it has an A grade for Trade, and a B grade for Buy & Hold. Get ESGE’s Peer grade here.

ESGE is ranked #58 out of 100 ETFs in the Emerging Markets Equities ETFs group.

iShares ESG Aware MSCI EAFE ETF (ESGD)

ESGD is an exchange-traded fund managed by BlackRock Fund Advisors. It invests in public equity markets of the global ex-US/Canada region and companies operating across diversified sectors. In addition, it seeks to track the performance of the MSCI EAFE Extended ESG Focus Index.

ASML Holding NV (ASML) has a 2.26% weighting in the fund as its top holding, followed by Nestle S.A. (NSRGY) at 2.09%, and Roche Holding Ltd (RHHBY) at 1.50%. The fund has $6.85 billion in AUM. Its expense ratio of 0.20% compares to the category average of 0.41%.

ESGD has an ESG score of 8.74 out of 10. It pays $1.67 annually in dividends to its investors, which yields 2.04%. Its average four-year dividend yield stands at 2.38%. Over the past year, the fund has gained 26.1%. In addition, it has gained 13.3% over the past nine months.

It’s no surprise that ESGD has an overall A rating, equating to a Strong Buy in our proprietary ratings system. In addition, it has an A grade for Trade, Peer, and Buy & Hold.

Click here to access all of ESGD’s ratings. ESGD is ranked #9 out of 74 ETFs in the A-rated Foreign Large Cap Blend ETFs group.

Vanguard ESG U.S. Stock ETF (ESGV)

Managed and launched by The Vanguard Group, Inc., ESGV invests in companies deemed socially conscious in their business dealings and directly promotes environmental responsibility. The fund uses the full replication technique to track the FTSE US All Cap Choice Index performance.

ESGV has $5.31 billion in AUM. Its top holdings include Apple Inc. (AAPL) with a 6.32% weighting in the fund, Microsoft Corporation (MSFT) at 5.81%, and Amazon.com, Inc. (AMZN) with 3.91%. The fund’s 0.12% expense ratio compares favorably to the category average of 0.37%.

ESGV has an ESG score of 5.98 out of 10. The fund pays an annual dividend of $0.77, which yields 0.91% at the prevailing share price. Its average four-year dividend yield stands at 1%. The fund has gained 35.2% over the past year and generated 23.1% returns over the past nine months.

ESGV’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary ratings system. It also has an A grade for its Trade, Peer, and Buy & Hold components.

ESGV is ranked #20 out of 264 ETFs in the A-rated Large Cap Blend ETFs group. Get all the ESGV ratings here.

Xtrackers MSCI USA ESG Leaders Equity ETF (USSG)

Launched and managed by DBX Advisors LLC, USSG invests in public equity markets of the United States and invests in growth and value stocks of companies across diversified market capitalization. In addition, it seeks to track the performance of the MSCI USA ESG Leaders Index.

The fund’s top holdings include MSFT with a 10.55% weighting, Alphabet Inc. Class A (GOOGL) at 4.24%, and Alphabet Inc. Class C at 4.15%. It has $3.87 billion in AUM, and its expense ratio of 0.10% compares to the category average of 0.43%.

USSG has an ESG score of 7.85 out of 10. It pays an annual dividend of $0.50, which yields 1.21% on the prevailing price. Its average four-year dividend yield stands at 1.13%. The ETF has gained 34.7% over the past year and 24.3% over the past nine months.

USSG’s POWR Ratings reflect its solid prospects. It has an overall A rating, which equates to a Strong Buy in our proprietary ratings system. In addition, it has an A grade for Trade and Buy & Hold.

Click here to see USSG’s Peer grade as well. In addition, USSG is ranked #23 in the Large Cap Blend ETFs group.

ESGE shares were trading at $43.28 per share on Friday afternoon, up $0.09 (+0.21%). Year-to-date, ESGE has gained 3.62%, versus a 20.68% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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