FA: How has this product suite performed since it launched?
Farris: Since they’ve launched, more than half of our products have outperformed their non-ESG benchmarks from which they were developed. What we’re trying to do is provide the risk/return characteristics of a non-ESG product but incorporate the ESG and low-carbon criteria we consistently use throughout our methodology.
Research finds that incorporating ESG criteria into the investment selection process may add incremental return to a strategy. As we’ve seen with half of our products, there has been some outperformance. These products have been around for more than two years, so we’ll see if that trend continues.
FA: What criteria should investors use to evaluate the performance of Nuveen’s ESG funds? Should it be against non-ESG funds or the ESG universe?
Farris: There are two ways to do that, and I leave it to the advisor to choose which one they prefer. Built into our index methodology are predictive tracking error bands around the index from which our indexes are developed. For example, our developed markets product, NUDM [Nuveen ESG International Developed Markets Equity ETF], is built using the MSCI EAFA Index and should have a predictive tracking error within a certain range of the MSCI EAFA Index. That’s the best way to compare the performance of that ETF against a non-ESG benchmark, which in this case is the MSCI EAFA.
The other way to do it is comparing it to the other ETF benchmarked to the MSCI EAFA, which is EFA, an iShares product [iShares MSCI EAFE ETF]. And you can do something similar to that across the other products we have on the market.
FA: What’s next for Nuveen in the ETF space?
Farris: We will continue along the same path we’ve been following. We have one high-yield ESG product that has been filed. We want to continue bringing products that incorporate ESG and low-carbon criteria into the index methodology, but also seek to track the risk/reward characteristics of a non-ESG benchmark. And we want to do it within the major Morningstar categories that don’t have ESG-branded products.