U.S ETFs Bounce Back Amid Capital Inflows Into ESG ETFs

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Exchange-Traded Funds have been a bright spot in the vast capital markets for the better part of the year. However, in recent days, sentiments in the segment have taken a significant hit following the discovery of a new COVID-19 strain, believed to be 70% more transmissible. Demand for risky assets has since taken a hit, with investors scampering for safety in safe-havens.

ETF’s Bounce Back

Index ETFs were trying to bounce back early in the week as futures market tumbled over the weekend over the contagious new coronavirus strain in the U.K. There is growing concern that if the new strain finds its way into the U.S, could exacerbate the situation.

However, the upward momentum still remains in place, with ETFs recouping some of the losses in the wake of Congress agreeing to a new $900 billion stimulus package. With the stimulus package in place, investors may attempt to lock in some profits, which could result in further declines in the ETF markets.

ESG ETFs Demand

Amid the uncertainty triggered by the COVID-19 pandemic, investors are increasingly turning their attention to ETF funds that track socially responsible investments. ETFs based on environmental, social and governance principles have been on a roll and look set to finish the year on a high amid strong demand in the market.

Investors have already funneled record highs of $27.4 billion in ESG related ETFs in 2020, all but doubling the size of the asset category. The increased capital inflows underscore increased bets that the incoming administration will push for new legislation aimed at combating climate change.

Asset managers are increasingly rolling out ESG investments with 31 ESG related ETFs already rolled out, double last year. ESG ETFs have also outperformed, with Nuveen ESG Mid Cap Growth ETF (NUMG) already up by more than 40% for the year.

Other ETFs that have also doubled this year include iShares Global Clean Energy ETF (ICLN) and KraneShares MSCI China Environment Index ETF (KGRN). BlackRock’s survey of 425 asset managers indicates that most of them intend to double their sustainable assets under management.

Sustainable Investment

In addition, the COVID-19 pandemic is increasingly triggering profound shifts in how economies operate, and investors invest. The pandemic is acting as fuel, triggering increased focus on investments focused on sustainability, rising inequality a and e-commerce.

In the race for sustainable assets, investors are looking into iShares ESG Aware MSCI USA ETF that track the MSCI USA Extended ESG Focus Index’s investment results. The iShares MSCI USA Quality Factor ETF (QUAL) also continues to arouse interest as it tracks the MSCI USA Sector Neutral Quality Index.

For investors looking to gain single country exposure, especially in emerging markets, VanEck Vectors Israel ETF (ISRA) would be an ideal pick. The ETF tries to replicate the performance of the BlueStar Israel Global Index. It comprises depositary receipts of publicly-traded organizations. The ETF is ideal for investors looking to gain some exposure in Israel, a country looking to beat gross domestic product forecast.


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