Original, independent, thought leadership
CoW12-12-2021-2

Actively managed sustainable ETFs dominate new launches in 2022

0:00 / 0:00

Home » Research » Chart of The Week » Actively managed sustainable ETFs dominate new launches in 2022

Share This Article:

The Bottom Line:  More active versus passively managed sustainable ETFs will be launched in 2022, but costs are higher and they are likely to underperform.

0:00 / 0:00

 

Number of active vs. passive sustainable ETF launches:  January 1 – November 30, 2022

Notes of Explanation: Data source:  Morningstar Direct.  Research by Sustainable Research and Analysis.

Observations:

  • This year for the first time, actively managed sustainable ETF launches will outpace new passively managed ETFs, based on data through the end of November 2022. The latest entries into the actively managed sustainable ETF space include three funds managed by Dimensional Fund Advisors LP and one by Thrivent Asset Management.  At the end of November, there were 135 passively managed sustainable ETFs with $94.6 billion in assets and 86 passively managed sustainable ETFs with $5.4 billion in assets, for a combined total of $100 billion.  
  • During the 11 months through the end of November, 45 sustainable ETFs were launched.  Of these, 34 are actively managed while 11 are passively managed, or just about 3:1 active versus passive.  This compares to almost an equal number of passive and actively managed ETF launches in 2021 and almost 2:1 sustainable passive versus active ETFs in 2020.
  • The new issue momentum favoring actively managed ETFs is unfolding even as most active managers underperform most of the time relative to securities market indices.  According to S&P Indices Versus Active (SPIVA) research that measures the performance of actively managed funds against their relevant S&P index benchmarks, this is the case not only for equity funds but also fixed income and global/international managers.  These conclusions also apply across geographies.  Moreover, when good performance does occur, it tends not to persist. Above-average past performance does not predict above-average future performance.
  • The average expense ratio covering this year’s cohort of actively managed sustainable ETFs is 60.2 basis points as compared to 27 basis points for passively managed funds, or 55% lower.  Offsetting higher expenses are three acknowledged benefits that accrue to actively managed ETF investors, namely tax efficiencies, but applicable to taxable funds, lower minimum investment requirements and a greater level of transparency.  
  • In addition to fundamental investment factors, the Dimensional Emerging Markets Sustainability Core 1 ETF (DFSE), Dimensional International Sustainability Core 1 ETF (DFSI) and the Dimensional US Sustainability Core 1 ETF (DFSI) take into account the impact that companies may have on the environment and other sustainability considerations when making investment decisions.  Dimensional may overweight, exclude or underweight companies based on sustainability impact considerations.  The Thrivent Small-Mid Cap ESG ETF (TSME) identifies companies that have sustainable long-term business models for the benefit of all primary stakeholders while driving financial success and risk management and also considering various ESG factors.  The fund reports that it will measure its performance relative to a conventional benchmark as well as an ESG index—a practice adopted by a very small segment of actively managed sustainable funds.    
  • Unless an actively managed strategy is highly desirable but difficult or impossible to replicate, is offered by a fund manager with an established track record, has achieved sufficient scale and diversity of shareholders and is subject to a reasonable expense ratio, preference by investors should be given to sufficiently scaled passively managed sustainable ETFs offered at attractive fees.  
YOU MAY ALSO LIKE
$99.99
PER YEAR

Premium Articles Access Priority Support 1 Fixed Price

Free Trial
30 Day

Access to All Data No Credit Card Required Cancel Any Time

9.99
Monthly

Access to Premium Articles Priority Support Save 25%


Sign up to free newsletters.


By submitting this form, you are consenting to receive marketing emails from: . You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

Research

Research and analysis to keep sustainable investors up to-date on a broad range of topics that include trends and developments in sustainable investing and sustainable finance, regulatory updates, performance results and considerations, investing through index funds and actively managed portfolios, asset allocation updates, expenses, ESG ratings and data, company and product news, green, social and sustainable bonds, green bond funds as well as reporting and disclosure practices, to name just a few.

A continuously updated Funds Directory is also available to investors.  This is intended to become a comprehensive listing of sustainable mutual funds, ETFs and other investment products along with a description of their sustainable investing approaches as set out in fund prospectuses and related regulatory filings.

Getting started

Many questions have surfaced in recent years regarding sustainable and ESG investing.  Here, investors and financial intermediaries will find materials that describe the various approaches to sustainable investing and their implementation.  While sustainable investing approaches vary and they have thus far defied universally accepted definitions, many practitioners agree that they fall into the following broad categories:  Values-based investing, investing via exclusions, impact investing, thematic investments and ESG integration.  In conjunction with each of these approaches, investors may also adopt various issuer engagement procedures and proxy voting practices.  That said, sustainable investing approaches will continue to evolve.

In addition to periodic updates regarding sustainable investing and how this form of investing is evolving, investors and financial intermediaries interested in implementing a sustainable investing approach will also find source materials that cover basic investing themes as well as asset allocation tactics.

Inesting ideas

Thoughts and ideas targeting sustainable investing strategies executed through various registered and non-registered sustainable investment funds and products such as mutual funds, Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs), closed-end funds, Real Estate Investment Trusts (REITs) and Unit Investment Trusts (UITs). Coverage extends to investment management firms as well as fund groups. 

Independent source for sustainable investment management company research, analysis, opinions and sustainable fund disclosure assessments