Invesco Ltd., a global asset management firm, just introduced two new Environmental, Social, and Governance (ESG) fund offerings: the Invesco ESG NASDAQ 100 ETF (QQMG) and its ESG NASDAQ Next Gen 100 ETF (QQJG). The company’s ESG funds debuted last week, are passively managed, and have an expense ratio of 0.20 percent.
“Our clients appreciate the rigor that the rules-based methodology of an indexing-tracking ETF brings to ESG,” said Nick Kalivas, Head of Factor and Core Equity Product Strategy for the Invesco ETFs and Indexed Strategies team in an interview with TriplePundit.
“For investors who are already fans of the companies included in the Invesco QQQ [which tracks the Nasdaq-100 index], the two new ETFs offer a choice to stay invested in many of those companies while tilting towards their own moral and environmental values,” added Kalivas. “Since the QQMG and QQJG ETFs closely track the performance of the QQQM and QQQJ ETFs, they should not have to compromise returns to invest with their values.”
These funds exclude companies that don’t meet Nasdaq's ESG criteria. For example, businesses involved in alcohol, cannabis, controversial weapons, gambling, nuclear power, oil and gas - as well as tobacco - are not eligible.
The issuers must meet the ten United Nations Global Compact (UNGC) principles related to labor, corruption, human rights, and the environment. Companies must also have a Sustainalytics score of less than 40 on a 100-point scale for unmanaged ESG risks.
This ETF is based on the Nasdaq 100 Index, which comprises the largest 100 domestic and international non-financial companies listed on the NASDAQ exchange. The expense ratio of QQMG is just 0.05 percent higher than that of QQQM, which is .15 percent. The QQMG fund is very similar to the Invesco Nasdaq 100 ETF (QQQM) but with an ESG filter that removes several companies and weighs the companies slightly differently.
For example, the top ten holdings for the two funds are identical and consist of Microsoft, Apple, Nvidia, Netflix, Amazon, Facebook, Adobe, Tesla and two classes of Alphabet stock. These stocks, however, comprise 53 percent of QQQM and 54 percent of QQMG. In total, the fund left out six firms within the Nasdaq 100, three of which are electric utilities.
Invesco's ESG NASDAQ Next Gen 100 ETF (QQJG) tracks the performance of the Nasdaq Next Generation 100 Index, which are the largest non-financial firms outside of the Nasdaq 100. It is similar to the company's Nasdaq Next Gen 100 ETF (QQQJ), but the top holds and weighing are slightly different.
At its launch, 10 companies in the Nasdaq Next Generation 100 Index didn’t qualify for the fund. Of these, four are casinos and three are pharmaceutical companies. Companies in other industries also did not make the cut. Beyond Meat, for example, was excluded from the fund for having a Sustainalytics score over 40, thereby disqualifying the company.
There is a more significant difference when comparing QQQJ and QQJG vs. QQQM and QQMG. Tractor Supply Company and Trimble replaced Roku and Trade Desk in QQJG. The top holdings in QQQJ account for 21 percent of the total, compared to 25 percent with QQJG.
These two new Invesco ESG funds offer more options to investors wishing to eliminate specific industries or companies with high ESG risks. Although the funds look similar to their non-ESG counterparts, there are fundamental differences. Also, because the expense ratios are low, they have the potential to enable higher returns for investors.
Image credit: Austin Distel via Unsplash
Sarah Lozanova is an environmental journalist and copywriter and has worked as a consultant to help large corporations become more sustainable. She is the author of Humane Home: Easy Steps for Sustainable & Green Living, and her renewable energy experience includes residential and commercial solar energy installations. She teaches green business classes to graduate students at Unity College and holds an MBA in sustainable management from the Presidio Graduate School.