In this week’s ETF Prime episode, host Nate Geraci talks to Lara Crigger, editor-in-chief of ETF Trends, who talks about the ESG success stories and innovations in the ETF space this year and how the understanding of ESG is changing and evolving.
Geraci is also accompanied by Laura Segafredo, Global Head of Sustainable Research ETF and Index Investments at BlackRock, and Sarah Greenberg, Executive Director ESG Client Coverage at MSCI, who talks about integrating ESG into a portfolio and what investors are looking for in this area should. Geraci is later joined by Roundhills co-founder and CEO Will Hershey, who talks about ETF tickers and the role of social media in the ETF industry.
The discussion begins with Crigger answering a question about their takeaway on cryptocurrency ETF trials, as someone who has watched many of them over the years. Crigger says she was surprised at how strong that ProShares Bitcoin Strategy ETF (BITO) came out of the gate and crashed the SPDR gold shares (GLD) the fastest ETF with $ 1 billion in assets under management. the Valkyrie Bitcoin Strategy ETF (BTF) also made a strong debut on the markets, but remains somewhat overshadowed by BITO.
“I have a record that this particular product I believe will help advisors because it can help them meet customers where they are. Crypto is something that customers want, and now it’s going to come in an easy-to-use ETF package, ”says Crigger.
One of the major drawbacks and potential sticking points for a Bitcoin futures ETF compared to spot Bitcoin exposures are the restrictions built into the futures markets, namely position limits. BITO has already concluded December contracts and has reached the limit of 4,000 contracts for November. If the ETF’s popularity continues, it could lead to long-term problems with the limits of responsibility at the CFTC and the need to seek other commitments.
the Blackrock US Carbon Transition Readiness ETF (LCTU) is one of the top launches this year, with BITO sneaking up quickly. It reflects an increased focus on sustainability by investors and issuers alike. However, this fund hasn’t had much resonance since it was launched, Crigger explains, and it falls into a category of ESG funds that tick very specific boxes for investors and don’t really grow much beyond that.
Crigger finds particular interest in the Motor No. 1 Transform 500 ETF (VOTE), a fund that buys the S&P 500 companies and keeps the shares for the use of proxies. She uses the voting shares to vote more sustainably in the company in order to bring about change. This strategy has worked for the hedge fund activist in the past – look at the time it removed three executive seats on the Exxon board of directors and replaced them with people focused on sustainability and green practices.
At just five basis points, VOTE remains competitive with other large funds that also broadly track the S&P 500, and is a good counter-argument that ESG investments are too expensive.
“It shows that there is some catching up to do on the part of investors who want this activist -proach, they want the investment manager to get actively involved in ESG issues. I find that remarkable, ”says Geraci.
ETFs like that Humankind US Equity ETF (HKND) and the Impact Shares Affordable Housing MBS ETF (OWNS) Also coming out this year, it reflects an evolution in the ESG space and all of them have seen organic growth.
“These are basic ideas that are well received by investors; they may not be billion dollar funds yet, but they are concepts, ideas that investors like, ”explains Crigger.
At first glance, all ESG themed ETFs seem unrelated, but Crigger argues that they are all centered around the underlying issue of carbon conversion. She believes that the three components of ESG (environmental, social and governance) are much less individualized today, but rather are interconnected and interconnected.
the KraneShares Global Carbon ETF (KRBN) is a fund for carbon credits that was a powerhouse of an ESG ETF; To date, the fund has over $ 1 billion in assets under management, mostly through organic growth with very few outflows, most of which have been repayments, Crigger says.
With $ 111 billion in assets under management in ESG ETFs today, it’s an area that continues to see incredible growth and is only a small fraction of the market. ETFs currently hold a total of $ 7 trillion in AUM, and ESG inflows represent 5% of all inflows into ETFs as of the start of the year.
“If someone expected ESG ETFs to become the largest segment overnight, it won’t h -pen, but it won’t shrink either,” says Crigger.
ESG funds and data
Geraci then speaks to Laura Segagredo, Global Head of Sustainable Research ETF and Index Investments at Blackrock, the world’s largest ETF issuer, and Sarah Greenberg, Executive Director of ESG Client Coverage at MSCI, a leading indexer. Blackrock is an MSCI client developing ESG investment solutions, be it through funds or ESG data; In fact, 58 of the 113 ESG products BlackRock offers use an MSCI index.
Segagredo explains that the growth in ESG interest is largely due to global warming and the effects increasingly being felt by catastrophic climate events – events like these have resulted in the direct death of 400 people so far this year in the US alone.
“This is of course the top priority for our customers; How do we ad -t to a world moving in this direction, but how do we ensure our portfolios are prepared for the transition to a low carbon world necessary to avoid the worst effects of these catastrophic climatic events ”, explains Segagredo.
There are several ways to invest within the ESG space, including exclusionary -proaches that eliminate fossil fuel and carbon emissions exposure, priority investments that increase exposure to companies that are optimally geared towards carbon conversion, and the Reduction of the engagement in less prepared companies and also the focus on climate issues and impact results.
Greenberg explains that MSCI offers over 700 different climate data points for customers, including “Area 1, 2 and 3 carbon emissions that can be used to calculate the carbon footprint of portfolios with multiple asset classes” and a variety of other types of data for institutional investors, professional investors and others.
The podcast ends with a discussion with Roundhill Investments co-founder and CEO Will Hershey about the role that ticker symbols can play. Roundhill currently has BETS for a sports betting ETF, META for theirs Roundhill Ball Metaverse ETF, NERD for their esports ETF and a host of other eye-catching tickers.
“In today’s world of short attention spans and social media, tickers have really become a brand for companies, but especially for ETFs. Each ETF is really its own brand, ”explains Hershey.
Roundhill’s META saw a surge in inflows with Facebook announcing that it was changing its name to Meta (however, the new ticker will be MVRS). Popularity plays a role in the importance of topic tickers and how an easily identifiable ticker makes a difference to the subject of the ETF, according to Hershey.
Working with Matthew Ball, the fund is the first of its kind to track the performance of the Metaverse, the successor to the Internet that claims it will bridge the physical and virtual worlds.
“We’re talking about a fundamental change in the types of content that people are broadcasting,” which will be a drastic change from the way the Internet currently works, says Hershey.
Hershey concludes with a discussion of social media and their role in branding and sharing topics and information, and how they enable a much greater exposure of ETFs to a wider range of people.
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