Interactive Investor

The investment strategy that’s proving popular with ETF investors

17th August 2021 10:08

Tom Bailey from interactive investor

Here’s where half of all money going into exchange-traded funds (ETFs) in 2021 has been invested.

Half of all money going into exchange-traded funds (ETFs) in 2021 has been invested in environmental or ethical funds, according to data from TrackInsight.

So far, 2021 has seen a record amount of inflows into European ETFs. Year-to-date, ETFs listed in Europe have seen more than $130 billion (£94 billion) of investor money. Of this, $65.6 billion has been directed towards ESG funds (those that focus on environmental, social and governance factors). This makes up 50% of the total inflows.

Europe has long been seen as a leader when it comes to ESG adoption, with about 13% of total assets under management now in ESG strategies. In comparison, ESG ETFs represented just 2% of the total assets under management for North American ETFs. In 2021 so far, just 6% of the inflows into ETFs in North America have gone into ESG strategies.

Globally, ETFs with an environmental strategy still hit new record highs. Such ETFs now have $325 billion under management, with $100 billion of inflows year-to-date. In contrast, ESG ETFs saw just under $90 billion for all of 2020. The number of ESG ETFs listed worldwide has also increased, with 174 new listings so far in 2021.

Commenting on the data, Ailing Zhang, ESG ETF analyst at Trackinsight, said: “The impact of the climate crisis is obvious to all eyes that can see. The current wildfires in Turkey, Italy and Greece have not only caught our attention, but are also a vivid illustration of the importance of change.

“However, these latest numbers are cause for hope and indicate that we’re witnessing an historic shift in the mentality of European investors, who are now putting sustainability at the heart of their investment decisions.

The growing demand for environmentally conscious investing has also seen Royal London change the methodology of some of its passive funds.

The asset manager recently announced that it will be introducing new sustainability “tilts” to its passive index funds. These tilts will see the funds increase their holdings of companies with high ESG scores. As a result, the so-called carbon intensity of some funds is expected to reduce by around 10%.

Royal London previously committed to ensuring its investment portfolio becomes carbon “net zero” by 2025.

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