Sustainable municipal ETFs, all actively managed, still small but growing

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The Bottom Line:  Sustainable municipal ETFs, a small investment category, reached over $1.0 billion in October having expanded by $262.9 million over the trailing three-months.

A small category, sustainable municipal ETFs reach over $1.0 billion in October

Overall, 141 sustainable ETFs with $70.0 billion in assets were on offer in the US at the end of October 2020, including one new fund that was launched during the month. Of these, 30 funds with $20 billion in assets are classified as fixed income, both index funds and actively managed investment vehicles. The overall category expanded by $7.3 billion or an increase of 11.6% across the three month interval to the end of October. A net of $5.4 billion, or 74.5%, was added during the month October alone. Equity-oriented funds added $5.1 billion, or 11.7%, while fixed income ETFs expanded by $2.1 billion or 11.4%.

Sustainable fixed income ETFs passed the $20 billion level in October, reaching $21 billion. Refer to Chart 1. Comprised of both sustainable taxable and municipal ETFs, sustainable fixed income ETFs now account for 30% of sustainable ETF assets in the US. At only $1.0 billion, sustainable municipal ETFs make up a small 5% percentage of total sustainable fixed income ETF assets. That said, municipal sustainable ETFs expanded by $262.9 million, or an increase of 34% over the trailing three-months. The investment category consists of only four funds, all actively managed by Eaton Vance, Hartford Funds (Wellington Mgt.) and J.P. Morgan. J. P. Morgan Investment Management dominates the category with its $836 million JPMorgan Ultra-Short Municipal ETF. This ESG integrator accounts for 81% of the segment’s assets and was responsible for $252 million of the increase experienced over the last three months. As part of its security selection strategy, J. P. Morgan also evaluates whether environmental, social and governance factors could have material negative or positive impact on the cash flows or risk profiles of securities universe in which the fund may invest. The firm also manages the much smaller JPMorgan Municipal ETF. Refer to Table 1.

Table 1: Sustainable municipal ETFs and their sustainable investing strategies (10/31/2020)
Fund Name$ AUMSustainable Investing Strategy
JPMorgan Ultra-Short Municipal Inc ETF835,819,258ESG Integration 
Hartford Municipal Opportunities ETF120,816,641ESG Integration 
JPMorgan Municipal ETF62,341,547ESG Integration 
Eaton Vance TABS 5to15Yr Ldrd MuniBd NS7,471,825ESG-Consideration 
Sources: $AUM Morningstar Direct; Sustainable Research and Analysis LLC (SRA)
Notes of explanation: Sustainable investing Definitions/per SRA: ESG Integration-The fund will integrate ESG and may also engage with stakeholders, ESG Integration-Consideration-The fund may integrate ESG. ESG Integration-Mixed-Core strategy consists of ESG integration, but exclusions, impact or thematic approaches may also be employed. Sustainable investing strategy source: Fund prospectus and related documents as compiled by Sustainable Research and Analysis LLC
Chart 1: Sustainable fixed income ETFs (10/31/2020)
Sources: Morningstar Direct; Sustainable Research and Analysis LLC
Note of Explanation: While definitions continue to evolve, sustainable investing refers to a range of five overarching investing approaches or strategies that encompass: values-based investing, negative screening (exclusions), thematic and impact investing and ESG integration. Shareholder/bondholder engagement and proxy voting may also be employed along with one of more of these strategies that are not mutually exclusive.
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