Displaying items by tag: ETFs

The environmental, social, and governance investment trend continues on a full head of steam as Goldman Sachs and BNY Mellon both launched a series of new ETFs aligning with different ESG objectives. Goldman launches a Large Cap equity ETF which tracks companies aligned with the new Paris Climate Agreement. Meanwhile BNY Mellon drops three new active ESG ETFs: the first will invest in over 80% sustainable U.S. equity, the second geared towards global markets, and the final will target emerging markets. These are just the latest as both Ark and JPMorgan created two new ESG ETFs as well in the last week. Some of the newer ETFs are following in the Euro area trend of specific disinvestment from companies reliant on C02.

FINSUM: The best part of all the new ESG focused products is the way they can be added that complement an existing portfolio: lacking large cap, pick up an ESG focused large cap ETF.

Direct and Custom Indexing is swallowing up the financial world interests like ETFs have over the last 20 years, but this new trend isn’t without its drawbacks, specifically for retirees. Most investors will utilize direct indexing to weed out stocks they don’t want or minimize their tax burden, Lawrence Tint formerly of BGI voiced some critiques of custom indexing. Tint believes the tax advantage over traditional indexing is minimal because of the turnover in the funds. Additionally direct indexing will have higher fees and even if brokers don’t charge for fees investors will incur the bid-ask spread costs. Finally, direct indexing will make it very hard for income investors to reinvest dividends in a way to mirror the existing or custom index, and the more custom the index the more likely the traditional problems of stock pickers will riddle the custom portfolio.

FINSUM: These drawbacks to direct indexing provide a more complete view of the pros and cons to the financial trend, but it still has a leg up in tax loss harvesting over traditional ETFs.

Saying the bond market is difficult would be more than an understatement, and while yields are creeping it's still hard to get the historic performance. However, many investors are turning to active fixed income ETFs. This has led to a swelling of inflows into the market category making up 16% of ETF inflows in 2021 through October. Turmoil at the Fed and the continual threat of a taper tantrum have many investors looking to pros to sort out the difficulties in the bond market. Active FI ETFs can also fit narrower targets and accommodate the rapidly shifting macroeconomic environment.

FINSUM: Seasoned veterans at the helm make the most sense when the environment is shifting, and active ETF can edge out when the future is uncertain.

ETFs have been a fee destroyer since their inception, and advisors/companies have been forced to either play along or bleed AUM. However, direct/custom is putting the power back in in the hands of the advisors. BlackRock, Vanguard, and Morgan Stanley are all buying their way into the direct indexing craze. Direct Indexing is giving investors and advisors the best of both active and passive investing worlds. While stock picking might not have the best record, starting from a base index and then stripping or adding based on preference could give investors. Custom Indexing can be for a preference for/or against a stock but more importantly it gives investors the reins when it comes to their tax burdens.

FINSUM: Direct Indexing is the goldilocks solution to the low fee/advisor specialty conundrum, and will be the dominant trend in investing over the next decade.

With 2021 almost coming to a close it's worth looking back at the biggest ESG funds of the last year, and three have stood out in a very saturated market. Goldman’s Future Planet Equity ETF is an active fund that addresses environmental problems and has raked in $107m since its launch in mid-July. Invesco’s MSCI Sustainable Future ETF focuses on corporations utilizing natural resources more efficiently and has outperformed the previous Goldman’s Future Planet fund by 4.7% since July. Finally, the Humankind U.S. Stock ETF is an ESG focused fund that is weighted by proprietary data and varies greatly from the traditional cap-weighted ETF. HKND has raised over $106 million since its launch in February.

FINSUM: These are stand out performers in a highly saturated market, equity focused ETFs are the route to take as far as ESGs.