Canadian ETF Sustainable Solutions
Sustainable ETF solutions showcased their value during periods of uncertainty in 2023.
With economic uncertainty being a prominent theme of 2023, top of mind for many investors were solutions that provided a proven base-line level of security (i.e., mitigated losses) or a high level of safety (i.e., preservation of capital) during periods of volatility; gone from the mind of many were solutions that were ESG focused. With sticky inflation, rising interest rates, and recession fears weighing on investors' sentiment, the narrative that the efficacy of sustainable focused solutions wanes in an uncertain market environment may arise in the minds of many, when in truth, that isn’t the case.
This article will highlight the performance of notable sustainable-focused funds that have exhibited compelling, and in one specific case exemplary, performance in 2023.
Sustainable solutions with strong performance
Invesco ESG NASDAQ 100 Index ETF (Ticker: QQCE) | ESG Strategy: Exclusion Screening
Performance: Year to Date (Dec. 28, 2023): 51.46%
QQCE replicates the performance of the Nasdaq-100® ESG Index, which employs an ‘exclusionary screening’ ESG approach. QQCE’s index methodology prohibits business activities related to arctic oil and gas exploration, military weapon manufacturing, and tobacco product manufacturing, among others.
The strong performance of QQCE can be attributed to the performance of the Nasdaq-100 Index®, the parent index of the Nasdaq-100® ESG Index, which has returned 56.25% as of December 28, 2023. Given the parent index of the fund, its primary geographic exposure is the United States, with the leading companies being the Magnificent Seven (i.e., Microsoft, Apple, NVIDIA, Tesla, Amazon, Meta, and Alphabet).
BMO MSCI USA ESG Leaders Index ETF (Ticker: ESGY) | ESG Strategy: Best-in-Class
Performance: Year to Date (Dec. 28, 2023): 25.84%
ESGY replicates the performance of the MSCI USA ESG Leaders Index, which follows a ‘Best-in-Class’ ESG approach, in that it is reflective of securities that have been assigned higher ESG ratings by MSCI relative to their peers and targets 50% of the market capitalization within each sector. The Index excludes securities of companies that earn significant revenues from tobacco, alcohol, gambling, conventional weapons and civilian firearms, any controversial weapons, significant generation of nuclear power as well as companies involved in severe business controversies.
Given the fund’s focus on US equities, familiar names such as Microsoft, NVIDIA, and Alphabet are present, but non-technology firms, such as VISA, Johnson & Johnson, and Home Depot are also reflected.
Desjardins RI USA - Net-Zero Emissions Pathway ETF (Ticker: DRMU) | ESG Strategy: ESG Thematic Strategy Performance: Year to Date (Dec. 28, 2023): 24.35%
DRMU replicates the performance of the Scientific Beta Desjardins United States RI Low Carbon Index and reflects a ‘Thematic’ ESG approach. As indicated in the fund’s name the focus is on ‘Net-Zero Emissions’. In looking at the fund’s recent sector allocation, as of October 2023, the fund has a strong technology tilt, with familiar names such as Apple Inc., Microsoft, and NVIDIA, being among the top 10. The fund’s second-largest sector exposure is Healthcare, with UnitedHealth Group and Eli Lilly and Co. being notable names.
Middlefield Sustainable Global Dividend ETF (Ticker: MDIV) | ESG Strategy: General Integration
Performance: Year to Date (Dec. 28, 2023): 17.88%
MDIV is an actively managed solution that provides investors with exposure to companies capable of paying a consistent dividend and growing their dividends over time. Like the previously mentioned solutions, MDIV is technology-tilted and has many familiar ‘big-tech’ names. However, the fund’s largest allocation is the Middlefield Healthcare Dividend ETF with a 12.50% allocation. The fund employs a general integration ESG strategy, in that portfolio companies are selected with an emphasis on environmental, social and governance factors to complement rigorous fundamental analysis.
For investors who seek to participate meaningfully in the market with solutions that have an ESG focus, the above ETFs are worth considering. As evidenced by their respective performance in 2023, investors can still grow their wealth, in an uncertain macroeconomic environment, with sustainably focused solutions.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
