ESG ETFs Gain Big As GameStop Triggers ETF Rally and BlackRock and Vanguard Feel U.S-China Tensions

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Exchange-Traded Funds were on a roll in 2020, attracting more than $500 billion in capital inflows. The stimulus-fuelled rally sparked demand for ETFs as investors sought to diversify their investments in the equity markets. Environmental, Social, and Governance focused ETFs emerged as one of the biggest winners in the ETFs landscape as investors focused on sustainable investing.

ESG ETFs Growth

ESG ETFs are the brightest spots in the market and look set to dominate fund sales in 2021 as more investor’s eye investment opportunities with a view of addressing underlying issues in the society. With green infrastructure at the center of the new administration in the U.S, there is no doubt ESG ETFs will continue attract big capital inflows.

The U.S market is not the only one dominating the ESG ETF landscape. Last year, a record of 45.5 billion euros found its way into European ESG ETFs, accounting for more than half of 89.3 billion euros in new cash. The U.S came in second, with ESG ETFs attracting $34 billion.

Increased focus on ESG ETFs comes amid bold policy initiatives on climate change in Europe and China last year. With the U.S joining the Paris agreement with the new administration, the landscape is expected to receive a significant boost.

New York Life Investments ETF

One of the catalysts behind increased ESG investments is the development of new products aimed at providing investors with broadened exposure. New York Life Investments Company is the latest to offer investors a way to invest in key sustainability issues.

In alignment with the American Heart Association, the company has launched IQ Healthy Hearts ETF (NYSE:HART), an ESG focused ETF that will offer investors an innovative thematic strategy focused on key sustainability issues.

The ESG ETF invests in companies that reflect core AHA initiatives research and programming focused on providing diagnosis and treatment of cardiovascular diseases as well as manufacturing and distribution of healthy food and wellness products.

Separately, ETFs were big winners as video game stock GameStop exploded by more than 400% the past week. The rally came amid a bitter standoff between retail investors and short selling hedge funds. The Wedbush ETFMG Video Game Tech ETF was one of the biggest gainers rallying by more than 16%. The SPDR S&P Retail ETF was also on a roll, rallying by more than 12% on the GameStop boost.

However, the small number of winners among funds underscores the relatively small ownership base among ETFs and Mutual funds. For instance, American retirement savings remained unchanged as none own the GameStop stock.

BlackRock and Vanguard ETF Blow

In addition, BlackRock and Vanguard might have to offload billions of dollars’ worth of investments to comply with the U.S government listing requirements. This is in response to Washington blacklisting a number of Chinese companies, some of which the two investment firms have in their ETF portfolios.

The two passive fund managers are the most affected given the amount of money they manage in funds tracking some of the affected indices. Vanguard FTSE Emerging Markets ETF is one of the top ETFs with exposure to five of the blacklisted Chinese firms in CRRC Corp, China Communications Construction Company, China Nuclear Engineering & Construction China Railway Construction Corporation, Semiconductor Manufacturing International Corporation.


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