“Investors want to do good, but they’re also investors,” said Linda Zhang, chief executive officer and founder of Purview Investments. “In order to grow you have to offer a product that satisfies both return, risk and impact -- all the three elements. By having a high fee there, it’s just going to hurt your performance metrics.”
Issuers have struggled to shake a perception that ESG products will underperform conventional funds, despite signs that the new model of broad funds are delivering similar returns. Vanguard’s U.S. fund has added 13 percent this year, beating its own S&P 500-focused ETF.
The sustainable funds launched by the big asset managers at lower fees don’t necessarily create the same impact as some of the higher fee funds, Purview’s Zhang said.
What’s Inside?
BlackRock says its ESG ETFs are cheaper when they rely on simple screens to avoid fossil fuels or weapons, rather than strategies that require more research. When it packaged its ESG ETFs into a new suite last year, the firm said it was designed to be low-cost so it could become a simple building block for an investor’s portfolio, similar to its other core offerings.
“Across the global iShares ETF line-up, our sustainable funds are priced either in line with or below the rest of the ETF range,” BlackRock spokesman Ed Sweeney said in a statement.
Socially conscious investors have however been willing to accept fees that are about double the new low-cost ETFs in the past. The iShares MSCI KLD 400 Social ETF, the largest ESG ETF with $1.3 billion, charges $2.50 for every $1,000 invested. That’s still well below the average cost of an ESG fund.
Vanguard is betting that investors will focus on finding a fund that aligns with their values, according to Rich Powers, head of ETF product management at Vanguard. While the firm’s ESG ETF is cheap at $1.20, it still costs more than the 30 cents the firm requires for its $109 billion total stock-market ETF.
“We price our funds at what they cost us to operate,” Powers said. “Investors are increasingly focused on lower cost investing as a starting point in their investment analysis process. But then, after that, it’s looking at what’s underneath the hood.”
This article was provided by Bloomberg News.