Nuveen, the investment management business of TIAA, debuted its first exchange-traded fund in September 2016 and its most recent ETF last month. The company now has 12 ETFs with total assets of slightly more than $706 million. Nine of its funds invest with a mandate to follow environmental, social and governance (ESG) principles. Interestingly, its first and most-recent products—the Nuveen Enhanced Yield U.S. Aggregate Bond ETF (NUAG) and Nuveen ESG Large-Cap ETF (NULC), respectively, aren’t ESG-focused funds. But for the most part, Nuveen sees ESG investing as its calling card with ETFs, and Financial Advisor recently spoke with Jordan Farris, Nuveen’s head of ETF product development, about Nuveen’s approach to ETF investing.
FA: What did Nuveen seek to achieve when it entered the ETF space?
Farris:
We do a responsible investing survey every year, and we did our fourth one in 2018. We saw that people are becoming more aware of what responsible investing is and are demanding that those types of standards be incorporated into the products they want to invest in. All of that helped drive our product direction.
FA: How do you measure success for your ETFs?
Farris: We look at success in a variety of ways. One of them is asset growth. We saw a pick up in asset growth after our domestic ETFs hit their two-year anniversary in December, and we think that will increase even more when they hit their three-year anniversary. But we want to look at the performance track record and whether they are doing what they’re supposed to be doing. Are they incorporating the ESG criteria and delivering the risk-and-return profile that investors would experience in non-ESG products? We see success in the asset pickup—all of our products are above $50 million [with the exception of its newest product, NULC, which has assets of nearly $7 million, as well as the Nuveen Enhanced Yield 1-5 Year U.S. Aggregate Bond ETF (NUSA), at $27.3 million]. We’ve had asset growth across the entire suite.
And we’re also seeing success with advisors using these products to construct entire portfolios versus just incorporating ESG into one sliver of their portfolio or their book.
FA: The ESG funds all use indexes with TIAA in their name. What role does TIAA have in developing the underlying indexes?
Farris: Our asset management business, including the responsible investing team, was still under the brand name TIAA when the indices were created, so we chose to put the TIAA name on the indices. We use MSCI’s ESG and carbon data as the underlying methodology to determine which securities will go into the products. My team provided the expertise for ETF product development and the distribution strategy. The subadvisor is Teacher’s Advisors, which is part of TIAA.
FA: Since these are new-ish products, has it been a struggle to get them on investment platforms?
Farris: We do have a little bit of an advantage being a larger firm with established relationships and we knew the right people to go to when we launched the products. But the requirements to be onboarded onto a platform are consistent with any firm no matter their size. We’re still going to have to meet the same thresholds pertaining to volume and AUM. Thankfully, we’ve had enough growth within our suite that we’ve been able to get fairly good platform access to the wirehouses and regional and independent broker-dealers and the RIA channel.
That has been a major distribution focus for us because without that access to those home-office platforms it makes our wholesalers' jobs more difficult when they’re interacting with individual advisors.
FA: How are advisors using the Nuveen ESG ETFs in terms of fitting them into portfolios?
Farris: We’re seeing them being incorporated into holistic philosophies. Based on our survey, we know that investors are increasingly interested in incorporating responsible investing and ESG principles into their portfolios. In turn, advisors want to develop solutions they can offer to their clients who show that interest. As opposed to 20 to 30 years ago when the main approach to ESG was exclusionary investing, now we’re using a best-in-class, or ESG leaders approach where we’re ranking companies across sectors by their ESG score, and taking the companies that are doing the best in managing their ES and G risks. That enables advisors to incorporate ESG criteria across an entire portfolio.