5 ETFs for ESG Investors to Watch

Since 1993, exchange-traded funds, or ETFs, have risen in popularity because they offer a cheaper and less risky investment option for investors.

ETFs represent shares of ownership of a unit investment trust that holds a portfolio of stocks, bonds, currencies or commodities. They provide considerable flexibility in implementing various investment strategies and in building investment portfolios.

ETFs with an environmental, social and governance (ESG) focus have grown in popularity in recent months and years as “green” investing gains more traction. There are 50 ETFs traded in US markets, with ESG-focused ETFs having total assets under management of US$62.42 billion.

But which ETFs have the highest ESG rating? Which ones will provide long-term capital gains? It depends on several factors, but the five ETFs below may be worth considering. They were the highest ESG-rated ETFs by assets under management as of August 4, 2021, according to MSCI ESG Research.

The firm evaluates companies with regard to their risks and opportunities around environmental issues, social and impact investing and good governance practices. It then gives an ESG rating that ranges from leader (AAA,AA), average (A,BBB, BB) to laggard (B,CCC).

Read on to learn more about these five ETFS for ESG investors to watch.

1. First Trust Preferred Securities and Income ETF (ARCA:FPE)

Total assets under management: US$7.33 billion

The First Trust Preferred Securities and Income ETF is an actively managed fund that attempts to seek total return and to provide current income. Under normal market conditions, the fund invests at least 80 percent of its net assets, including investment borrowing, in preferred securities and income-producing debt securities, such as corporate bonds, high-yield securities and convertible securities. The top industries it is exposed to include the banking, insurance and capital markets.

MSCI ESG has given this ETF an ESG rating of AA based on a score of 8.44 out of 10.

2. iShares Semiconductor ETF (ARCA:SOXX)

Total assets under management: US$7.02 billion

With exposure to US companies that design, manufacture and distribute semiconductors, the iShares Semiconductor ETF aims to track the investment results of an index composed of the 30 largest US-listed equities in the semiconductor sector.

This ETF for ESG investors to consider has an ESG rating of AAA from MSCI ESG based on a score of 8.6 out of 10. About 80 percent of its holdings are in the semiconductor space, followed by semiconductor equipment and cash or derivatives.

3. iShares ESG Aware MSCI EAFE ETF (ARCA:ESGD)

Total assets under management: US$6.28 billion

The iShares ESG Aware MSCI EAFE ETF seeks to track the investment results of an index composed of large- and mid-cap developed market equities, excluding those in the US and Canada, that have positive ESG characteristics as identified by the index provider, while exhibiting risk and return characteristics similar to those of its parent index — the MSCI EAFE Index.

The iShares ESG Aware MSCI EAFE ETF has an ESG rating of AAA from MSCI ESG based on a score of 8.72 out of 10. Its top holdings are within the financial, industrial and consumer discretionary sectors.

4. VanEck Vectors Semiconductor ETF (ARCA:SMH)

Total assets under management: US$5.6 billion

The VanEck Vectors Semiconductor ETF invests in the overall performance of companies involved in semiconductor production and equipment. It tracks a market-cap-weighted index of 25 of the largest US-listed semiconductor companies, although its portfolio may include both US domestic and US-listed foreign companies, allowing for enhanced industry representation.

This ETF has an ESG rating of AAA from MSCI ESG based on a score of 9.6 out of 10.

5. JPMorgan BetaBuilders Canada ETF (ARCA:BBCA)

Total assets under management: US$5.59 billion

Last but not least is the JPMorgan BetaBuilders Canada ETF, which tracks a market-cap-weighted index of large- and mid-cap Canadian equities. This fund seeks investment results that closely correspond to the Morningstar Canada Target Market Exposure Index. Using a passive investment approach, the fund attempts to replicate the index’s movement as closely as possible.

The JPMorgan BetaBuilders Canada ETF has an ESG rating of AA from MSCI ESG based on a score of 8.56 out of 10. The financial, energy and information technology industries are the top sectors to which this ETF for ESG investors to consider has exposure.

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Securities Disclosure: I, Priscila Barrera, currently hold no direct investment interest in any company mentioned in this article.