Socially responsible investing is much more popular within the European investment community, with a recently launched U.S. credit exchange traded fund that tracks environmental, social, and governance factors already attracting billions in inflows.
Source: ESG ETFs Are Shining in Europe
According to Morningstar data, the Irish-domiciled SPDR Bloomberg SASB US Corporate ESG ETF, which only came to market last October, brought in €4.6 billion, or $5.5 billion, in net inflows in February alone, the Financial Times reports.
The SPDR Bloomberg SASB US Corporate ESG ETF tracks U.S.-dollar denominated, investment grade corporate bonds and was developed in collaboration with Sustainability Accounting Standards Board. The fund also screens for ESG factors.
According to State Street Global Advisors, bond ETFs that follow the ESG theme attracted 25% of total net inflows that were funneled into fixed income ETFs listed in Europe over 2020. Matteo Andreetto, head of SPDR ETFs for Europe, pointed out that a record $270 billion globally found its way in to fixed income ETFs last year.
Looking ahead, SSGA believed fixed income demand will help drive growth for ESG-related ETFs, projecting the global ESG ETF market to expand to $1.5 trillion in assets under management by 2025, or the current size of the entire European ETF market.
Andreetto attributed the rising demand to large institutional investors, asset owners, and financial authorities. These types of large institutional investors are typically asking if there are ESG options due to their investment mandate or to improve the scoring of their ESG portfolio.
Andreetto also argued that investors can buy into baskets of bonds or single fixed income securities, but there is nothing that compares to the liquidity of the current fixed income ETF market. “ETFs are extremely easy to transact compared [with]using a single bond,” he added.
Additionally, many have turned to ETFs due to their low cost relative to traditional mutual funds. The lower average fees have helped ETFs draw assets away from higher-cost mutual funds over the years.
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