A recent press release from the CFA Institute caught my attention. The global association of investment professionals announced that it would market the Certificate in ESG Investing, a self-study course for industry professionals interested in better understanding environmental, social and governance (ESG) investments.
I don’t think there’s any question that ethical investing’s taken asset management by storm in recent years. A recent CFA Institute survey found that 76% of institutional investors and 69% of retail investors said they had an interest in ESG factors in the investment process.
Why have ESG investments become so popular? One of the reasons is that exchange traded fund (ETF) providers can charge more. The average ESG fund’s management expense ratio at the end of 2020 was 0.2%, six basis points higher than the average fee for U.S. large-cap ETFs.
However, one of the primary rules of business is meeting the wants and needs of your customers. In January and February, investors poured $8 billion into U.S. ESG funds, equivalent to the entire 2020, when investment providers launched 71 ETFs and mutual funds related to sustainable investing.
Here are 7 ESG stocks to consider:
- Apple (NASDAQ:AAPL)
- Microsoft (NASDAQ:MSFT)
- Wex Inc. (NYSE:WEX)
- Unilever PLC (NYSE:UL)
- Toyota Motor (NYSE:TM)
- Home Depot (NYSE:HD)
- Alibaba (NYSE:BABA)
To get you started in ESG investing, here are seven ESG investments from seven different ETFs.
ESG Investments to Buy: Apple (AAPL)
The first pick is from iShares ESG Aware MSCI USA ETF (NASDAQ:ESGU), which tracks the performance of the MSCI USA Extended ESG Focus Index, an ETF with $15.2 billion in net assets charging just 0.15% annually.
The ETF currently holds 347 stocks. Apple is the largest holding with a weighting of 5.7%.
In 2020, Apple became the world’s most profitable company earning $59 billion, more than any other public company on the planet. That will come in handy to pay the $309 million fine it was handed down by a federal jury in Texas. Although the company is planning to appeal the decision, it shows that even the tech industry’s giants can sometimes get caught with their hands in the cookie jar.
Apple’s planning to launch its iPhone 13 lineup in late September or early October. Wedbush Securities estimates that it will produce 25% more phones for the iPhone 13 than it did for last year’s models.
I would continue to expect big things from Apple. The fact that it meets ethical investing standards is a bonus.
The next pick on my list is from the Vanguard ESG U.S. Stock ETF (BATS:ESGV), which tracks the performance of the FTSE US All Cap Choice Index, an ETF with $3.5 billion in net assets and charging just 0.12% annually. This is another excellent option for ESG investing.
If you’re looking for diversification from your ESG ETF, Vanguard’s delivered with 1,459 stocks. Almost 31% invested in technology stocks such as Microsoft, the second-largest holding in the ETF behind only Apple. The top 10 holdings account for 27.2% of its net assets.
Microsoft is said to be in discussions to buy invite-only chat platform Discord for more than $10 billion. In December, after obtaining new funding, Discord had an enterprise value of $7 billion. Although Microsoft and other interested parties are having discussions with the platform, it’s thought that the company would prefer to go public.
Gamers tend to like to use Discord to carry on conversations with their friends while playing. Acquiring Discord would certainly strengthen Xbox’s position in the gaming marketplace.
Wex Inc. (WEX)
When constructing an investment portfolio, it never hurts to include a small-cap stock. To find my selection, I looked at the top 10 holdings of the Nuveen ESG Small-Cap ETF (BATS:NUSC), which tracks the TIAA ESG USA’s performance Small-Cap Index.
The ETF charges 0.4%, has net assets of $782 million, and 680 positions with technology (16.5%), industrials (15.9%), and health care (14.9%) the top three sectors by weight. Even Gamestop (NYSE:GME) is in the top 10.
The largest holding at 0.91% is Wex — it’s very diversified, with the top 10 accounting for just 7.1% of the total portfolio — a global leader in financial technology solutions. If you’ve got a fleet to run, lots of corporate payments, or looking to improve the way you administer your company’s health and benefit plans, Wex is there to help.
2020 was a tough one for the company. Its revenues fell 10% to $1.56 billion while its adjusted earnings declined by 45% to $64.8 million. However, WEX stock is up about 96% in the past year.
Unilever PLC (UL)
Danone (OTCMKTS:DANOY) CEO Emmanuel Faber recently stepped down due to pressure from activist investors who believed the leader didn’t do a good job balancing the need for shareholder value creation and sustainability efforts by the company.
Unilever’s former CEO, Paul Polman, was a big proponent of stakeholder capitalism. I believe that he put the household and personal products company on a sounder footing by meeting all stakeholders’ needs. But I digress.
Unilever is the third-largest holding of the Xtrackers MSCI EAFE ESG Leaders Equity ETF (NYSEARCA:EASG), which tracks the MSCI EAFE ESG Leaders Index. The index gives investors exposure to companies outside the U.S. and Canada that exhibit high ESG ratings relative to their sector peers. EASG charges 0.14%, has a total of 419 holdings, worth $17.9 million in net assets.
As for Unilever itself, it continues to be a bit of a mystery from a performance perspective. Down 6.23% year-to-date through March 29, but up almost 15% over the past 52 weeks, it’s hard to know which stock will show up over the long haul.
Toyota Motor (TM)
On March 24, Toyota announced a partnership with Isuzu Motors (OTCMKTS:ISUZY) and Hino Motors (OTCMKTS:HINOY) to develop small commercial trucks powered by both electric batteries and hydrogen fuel cells. As part of the agreement, Toyota will invest $394 million in Isuzu, equivalent to a 4.6% stake in the company. Isuzu will invest a similar amount in Toyota.
Regardless of what Tesla does, investors can be sure that Toyota will do what it takes to remain relevant in the automotive industry. Long-term, it’s an excellent buy.
Toyota is the fourth-largest holding of the IQ Candriam ESG International Equity ETF (NYSEARCA:IQSI), which tracks the IQ Candriam ESG International Equity Index’s performance. The index tracks international mid-cap and large-cap stocks that Candriam, a leader in sustainable investing, deems to have good ESG ratings.
The ETF currently holds 656 stocks from countries such as Japan (25%), UK (14%), and France (10%). It launched in December 2019 and has raised $166.3 million in net assets in the 15 months since. It charges 0.15% annually, which is quite reasonably for ETF and ESG investing.
Home Depot (HD)
The home improvement retailer is the eighth-largest holding in the FlexShares STOXX Global ESG Impact Index Fund (BATS:ESGG), an ETF with $163 million in net assets invested across 719 different stocks.
The ETF tracks the STOXX Global ESG Impact Index’s performance, starting with 1,800 possible holdings from the STOXX Global 1800 Index. It excludes companies that don’t adhere to the UN Global Compact Principles. It then rates the remaining companies on their ESG qualities, ensuring investors a diversified portfolio in the process.
The ETF’s top 10 holdings account for almost 27% of the portfolio, with 58% of the net assets invested in U.S. companies.
Home Depot’s stock’s continued its momentum so far in 2021. YTD, it has a total return of 13.35%, more than double the entire U.S. markets. Over the past year, it’s up 58%.
As the housing bull continues to roar, there is no doubt that Home Depot will continue to outperform the markets as a whole. It’s an excellent stock to hold for your ESG portfolio.
Although emerging markets’ stocks have cooled off in recent weeks, they still ought to account for a small portion of a diversified portfolio. When these markets take off, they really go like gangbusters.
The iShares ESG Aware MSCI EM ETF (NASDAQ:ESGE) tracks the performance of the MSCI Emerging Markets Extended ESG Focus Index, a collection of large- and mid-cap emerging market stocks that have positive ESG characteristics.
The ETF has 339 holdings, including Alibaba, which is the third-largest holding of the fund’s $7.1 billion in net assets. This is another great option for ESG investing. With an expense ratio of just 0.25%, ESGE is an excellent way to gain exposure to emerging markets.
It’s been a year of controversy for China’s largest e-commerce company.
The latest issue involves the Chinese government pushing the company to sell some of its media assets, which includes the South China Morning Post because it fears Alibaba holds too much influence over public opinion in the country.
This comes on the heels of Chinese regulators scuttling the plans of Alibaba affiliate Ant Financial’s $35-billion initial public offering and investigating the company for antitrust violations. As a result of this scrutiny, Alibaba founder Jack Ma went underground for almost three months before surfacing in late January.
As my InvestorPlace colleague, Faizan Farooque, recently argued, the regulatory issues plaguing Alibaba at the moment have only created a better value proposition than in years past.
At the moment, BABA is trading under $230. If you’re investing for the long haul, it’s a reasonable price to pay for future growth.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.