Last year was another banner year for inflows to exchange-traded funds. In fact, it was the second-best year ever for ETF flows ($326.1 billion to be precise) and a record year for fixed-income funds.
Most of last year’s top ETFs in terms of new assets added are what industry insiders refer to as “pure beta” products. That’s a fancy way of saying easy-to-understand, likely capitalization-weighted funds that track a well-known benchmark, such as the S&P 500 or the Bloomberg Barclays Aggregate Bond Index.
Basic funds usually lead the annual flows race, but there are some other areas of growth in the industry, including socially responsible ETFs. Last year, socially responsible ETFs, including environmental, social and governance (ESG) funds, continued adding to their ranks. More importantly, the group took in over $8.6 billion in new assets in 2019.
Obviously, that’s a small piece of the overall ETF pie, but it does indicate investors have a growing appetite for virtuous vehicles. With that in mind, here are some socially responsible ETFs to consider in 2020.
VanEck Vectors Green Bond ETF (GRNB)
Expense ratio: 0.20% per year, or $20 on a $10,000 investment.
Investors have long wondered when virtuous investing would make its way to the fixed-income universe. The VanEck Vectors Green Bond ETF (NYSEARCA:GRNB) helped answer that question, at least to a small extent. GRNB debuted nearly three years ago. The concept behind green bonds is simple. These bonds are issued by corporations and governments to finance eco-friendly projects. As such, GRNB’s 127 holdings are a mix of corporate and sovereign debt.
This socially responsible ETF follows the S&P Green Bond U.S. Dollar Select Index, which is “comprised of U.S. dollar-denominated green bonds that are issued to finance environmentally friendly projects, and includes bonds issued by supranational, government, and corporate issuers globally,” according to VanEck.
Like socially responsible ETFs, green bonds are a small, but rapidly growing part of the overall market. The last two years have brought record green bond issuance, a streak widely expected to continue this year. GRNB has an effective duration of 4.9 years and more than three-quarters of its holdings carry investment-grade ratings.
Nuveen ESG Large-Cap Growth ETF (NULG)
Expense ratio: 0.35%
Investors looking to access beloved large-cap growth fare, such as Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), in virtuous fashion may want to give a nod to the Nuveen ESG Large-Cap Growth ETF (BATS:NULG).
Growth stocks continue outperforming their value rivals, but that’s not the only reason investors ought to consider NULG. This socially responsible ETF dispels the notion that virtuous investing can be a drag on returns. Over the past year, NULG has outpaced the S&P 500 Growth Index by nearly 1,000 basis points. NULG follows the TIAA ESG USA Large-Cap Growth Index and allocates almost half its weight to technology and consumer cyclical stocks.
“The Index uses a rules-based methodology that seeks to provide investment exposure that generally replicates that of traditional large-cap growth benchmarks through a portfolio of securities that adhere to predetermined ESG, controversial business involvement and low-carbon screening criteria,” according to Nuveen.
Xtrackers S&P 500 ESG ETF (SNPE)
Expense ratio: 0.11%
The Xtrackers S&P 500 ESG ETF (NYSEARCA:SNPE) debuted last June. The rookie ETF is notable for at least two reasons, albeit superficial. First, SNPE is the first ETF to track the S&P 500 ESG Index. It’s interesting to note that at least for now, Facebook (NASDAQ:FB) is not one of the fund’s holdings. Second, SNPE has amassed $110 million in assets since inception, a very impressive start.
Another reason to like SNPE is its low fee. At just 0.11% per year, SNPE is one of the most cost-effective funds in the socially responsible category.
Just 313 S&P 500 members qualify for admission to SNPE. The fund is substantially overweight in information technology stocks (30.7%) and has a few other differences relative to its parent benchmark. Because of this, investors should expect significantly different returns than the traditional S&P 500.
Global X Conscious Companies ETF (KRMA)
Expense ratio: 0.43%
The Global X Conscious Companies ETF (NASDAQ:KRMA) has been around since July 2016, and it offers a different approach to socially responsible investing. KRMA follows the Concinnity Conscious Companies Index, using a unique but potentially rewarding methodology.
“As the first ETF to utilize the Multi-stakeholder Operating System (MsOS), KRMA offers exposure to companies achieving positive outcomes for 5 key stakeholders: Customers, Suppliers, Stock & Debt Holders, Local Communities, and notably, Employees,” according to Global X.
KRMA holds 161 stocks, none of which reaches a weight of 1%, indicating single-stock risk is minimal in the fund. The order of KRMA’s sector holdings is similar to that of the S&P 500, but the weights are different. Compared to the broader benchmark, the ETF is underweight energy.
Inspire Corporate Bond Impact ETF (IBD)
Expense ratio: 0.61%
There’s socially responsible investing and then there’s biblically responsible investing, a theme the Inspire Corporate Bond Impact ETF (NYSEARCA:IBD) is rooted in. California-based Inspire offers a broad suite of faith-based ETFs, with IBD being the first corporate ETF dedicated to Christian values.
There is a charitable element to Inspire ETFs and that applies to IBD as the fund “is carefully designed to create meaningful impact in the lives of people all across the globe by investing in inspiring companies and donating a portion of fees to support Christian ministry projects such as clean water wells, refugee relief efforts, Bible distribution and other worthy causes,” according to the issuer.
IBD only holds bonds issued by large-cap companies ($5 billion or greater) and only those with investment-grade ratings. This makes it a solid idea for income-minded investors looking to reduce corporate bond market risk.
Nuveen ESG High Yield Corporate Bond ETF (NUHY)
Expense ratio: 0.35%
Indeed, it’s possible to marry the concepts of junk bonds and virtuous investments as the Nuveen ESG High Yield Corporate Bond ETF (NYSEARCA:NUHY) proves. In fact, this idea merits consideration. Applying virtuous filters to high-yield bonds can help investors reduce and avoid trouble spots — such as companies vulnerable to credit downgrades and defaults. NUHY is the first socially responsible ETF in the high-yield category.
The fund targets the Bloomberg Barclays MSCI U.S. High Yield Very Liquid ESG Select Index and holds 204 positions with an effective duration of just under three years. NUHY’s duration is lower than some traditional junk bond ETF rivals, but its credit profile is similar (88% of holdings rated BB or B).
NUHY is still a kid in the socially responsible ETF world, having debuted last September. But the fund has already acquired a decent following as highlighted by $53.1 million in assets under management.
VanEck Vectors Low Carbon Energy ETF (SMOG)
Expense ratio: 0.63%
Looking for a decent ETF proxy on high-flying Tesla (NASDAQ:TSLA)? The VanEck Vectors Low Carbon Energy ETF (NYSEARCA:SMOG) is a fund to consider as its Tesla weight is 9.5%, one of the largest among all ETFs.
With its memorable ticker and significant Tesla exposure, SMOG is a broad-based play on the soaring alternative energy industry. It touches multiple corners of this disruptive space.
SMOG’s underlying index “is intended to track the overall performance of low carbon energy companies which are those companies primarily engaged in alternative energy which includes power derived principally from bio-fuels (such as ethanol), wind, solar, hydro and geothermal sources and also includes the various technologies that support the production, use and storage of these sources,” according to VanEck.
As of this writing, Todd Shriber did not own any of the aforementioned securities.