Three new SEC filings in January added to an expanding number of actively managed sustainable ETFs, 54 funds with $68.6 billion in assets under management as of January 31, 2021 (reference Chart 1).
Chart 1: Sustainable Actively Managed ETFs – Top 10 Assets Gainers in January 2021
The top 10 sustainable actively managed ETFs based on assets as of January 2021 added $12.5 billion in assets, or 98% of the segment’s gain.
Eight of the top 10 gainers were also the largest funds by assets in the segment.
The funds employ two forms of ESG integration approaches: ESG Integration and ESG Integration-Consideration.
While 20 firms offer actively managed sustainable ETFs, the segment is dominated by ARK, J.P. Morgan, Dimensional Fund Advisors and Hartford Funds Management (Reference Table 1).
Table 1: Four of the Largest Actively Managed ETFs and Their Investing Approaches
|Firm||Sustainable Investing Approach|
|ARK Investment Management||ESG Integration-The adviser evaluates ESG considerations, in its “top down” approach. ARK uses the UN SDG framework to integrate ESG considerations into its research and investment process. ESG considerations are not used to limit, restrict or otherwise exclude companies or sectors from a fund’s investment universe. In its “bottom up” approach, investment decisions primarily based on its analysis of the potential of individual companies.|
|J. P. Morgan Investment Management||ESG Integration-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 many companies in the universe in which the Fund may invest.|
|Dimensional Fund Advisors||ESG Integration-Dimensional monitors ESG news and large share price movements of eligible portfolio companies to identify issuers whose future financial data may be negatively impacted to a significant degree by environmental, social, or governance factors. Companies that are identified through this process, may be underweighted, temporarily excluded from further investment, or divested from a portfolio.|
|Hartford Funds Management||ESG Integration-Consideration-The sub-adviser, Wellington Management, may also consider certain environmental, social and/or governance (ESG) factors during its assessment. These ESG factors are not the only factors considered and as result, certain companies in which the Fund invests may not be considered ESG companies or have high ESG ratings.|
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Notes of Explanation: Based on Michael Cosack and Henry Shilling’s May 2020 research report titled “Rapid Growth in ESG Funds Calls for Adoption of Standards”, ESG integration is classified into three categories, defined as follows: ESG Integration-Consideration-The fund may integrate ESG. ESG Integration-The fund will integrate ESG and may also engage with stakeholders. ESG Integration-Mixed-Core strategy consists of ESG integration, but exclusions, impact or thematic approaches may also be employed.