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A growing number of investors are placing billions of dollars into socially responsible impact investing funds, which are also known as environmental, social, and governance (ESG) funds. These portfolios select stocks based on a company’s ESG practices, along with more traditional financial measures.
This has spawned a new family of exchange-traded funds (ETFs) that focus on investing criteria for the social good. These relatively new ETFs allow investors to achieve diversification while owning companies that follow specific ESG criteria.
Key Takeaways
- Impact investing securities have outperformed the broader market over the past year.
- The impact investing exchange-traded funds (ETFs) with the best one-year trailing total returns are PUI, DJD, and VSMV.
- The top holdings of these funds are Xcel Energy Inc., International Business Machines Corp., and Microsoft Corp., respectively.
There are 49 distinct impact investing ETFs that trade in the United States with an ESG score of 9.5 or higher out of 10 from VettaFi’s ESG screener, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). Impact investing securities, as measured by the S&P 500 ESG Index, have outperformed the broader market over the past year. The index has provided a total return of -7.9% compared with the S&P 500’s total return of -10.2%, as of July 1, 2022. The best-performing impact investing ETF, based on performance over the past year, is the Invesco DWA Utilities Momentum ETF (PUI).
We examine the best three impact investing ETFs below. These ETFs are ones that have a high ranking according to VettaFi’s ESG metrics, not ones that explicitly have an ESG goal in their prospectus. All numbers below are as of July 1, 2022.
- Performance Over One-Year: 6.6%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 2.17%
- Three-Month Average Daily Volume: 31,337
- Assets Under Management: $76.5 million
- Inception Date: Oct. 26, 2005
- Issuer: Invesco
PUI is a multi-cap blended fund that aims to track the Dorsey Wright Utilities Technical Leaders Index, a momentum-based index of 30 securities from the NASDAQ US Benchmark Index. Securities are evaluated for relative strength, which is a measurement of one stock’s performance compared with the performance of all other stocks in the same universe. Electric utilities make up the largest share of PUI’s holdings at more than 41%, followed by multi-utilities and gas utilities.
The top holdings of PUI include Xcel Energy Inc. (XEL), an electric and natural gas energy utility company; NiSource Inc. (NI), a natural gas and electric utility company; and NextEra Energy Inc. (NEE), an electric utility holding company.
- Performance Over One-Year: -0.7%
- Expense Ratio: 0.07%
- Annual Dividend Yield: 2.76%
- Three-Month Average Daily Volume: 50,765
- Assets Under Management: $214.7 million
- Inception Date: Dec. 16, 2015
- Issuer: Invesco
DJD tracks the Dow Jones Industrial Average Yield Weighted Index, which offers exposure to dividend-paying equity securities in the Dow Jones Industrial Average based on 12-month dividend yield in the past year. To be included in the index, securities in the index must have consistent dividend payments in the past 12 months. Information technology, healthcare, and consumer staples stocks make up the largest portions of the portfolio, respectively.
The top holdings of DJD include International Business Machines Corp. (IBM), a computer hardware and software company; Verizon Communications Inc. (VZ), a wireless service provider; and Merck & Co. Inc. (MRK), a pharmaceutical company.
- Performance Over One-Year: -1.7%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.55%
- Three-Month Average Daily Volume: 14,800
- Assets Under Management: $119.4 million
- Inception Date: June 22, 2017
- Issuer: Crestview
VSMV is a multi-cap blended fund that targets the Nasdaq Victory US Multi-Factor Minimum Volatility Index. The index provides exposure to U.S. stocks and aims to minimize volatility while maximizing risk-adjusted returns. It focuses on large-cap and mid-cap securities. Its biggest portfolio allocations are to information technology, healthcare, and consumer staples stocks.
The top holdings of VSMV include Microsoft Corp. (MSFT), a provider of cloud computing services, software and electronic devices; Johnson & Johnson (JNJ), a multinational pharmaceutical company; and Bristol-Myers Squibb Co. (BMY), a global biopharmaceutical company.
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