ESG stocks versus other asset classes
Environmental, Social, and Governance (or ESG) factors refers to a subgroup of non-financial performance indicators. They include sustainable, ethical, and corporate governance issues such as managing a company’s carbon footprint and confirming that there are systems in place leading to better accountability. We’ll be looking at the dividend yield of some of the ESG-compliant stocks that have been chosen based on their holdings in the iShares MSCI USA ESG Select ETF (SUSA). The performance comparison of SUSA with the FM-MSCI USA ESG Leaders Select TR, the TI-Russell 1000 TR, the RFI-US Treasury Bills Three Months TR, and the LGC-Lipper Global Equity US is shown in the chart below.
We can also gauge the performance comparison based on the calendar year shown in the chart below.
What are the key ESG sectors?
Information technology forms the key chunk of the holdings, followed by healthcare, industrials, financials, and consumer staples. Utilities form the lowest chunk followed by energy.
SUSA offers a dividend yield of 1.3% at a PE (price-to-earnings) multiple of 22.4x. We’ll be looking at the companies shown in the chart below.
Performance evaluation of the sectors
The Nasdaq Composite index (COMP-INDEX), the Dow Jones (DJIA-INDEX), and the S&P 500 (SPX-INDEX) have risen 20.0%, 13.0%, and 12.0%, respectively, on a year-to-date basis. Technology (XLK) led, followed by healthcare (XLV). Materials (XLB), industrials (XLI), and utilities (XLU) were next. Consumer discretionary (XLY) was followed by financials (XLF). Consumer staples (XLP) and real estate (XLRE) were in the same position. Energy (XLE) was the only sector to record a negative return.
Let’s look now at some socially responsible ETFs. The iShares MSCI KLD 400 Social ETF (DSI) offers a 1.3% dividend yield at a PE (price-to-earnings) multiple of 23.1x. It has a 28.0% exposure to technology. The iShares MSCI EM ESG Optimized ETF (ESGE) offers a 0.90% dividend yield at a PE multiple of 14.5x. It has a 27.0% exposure to technology. The SPDR S&P 500 ETF (SPY) offers a 1.9% dividend yield at a PE multiple of 18.7x, and the SPDR Dow Jones Industrial Average ETF (DIA) offers a 2.1% dividend yield at a PE multiple of 17.8x. The PowerShares QQQ (QQQ) offers a 0.90% dividend yield at a PE ratio of 22.2x.