Better navigate the world of ESG ETFs

Mary Hagerman, portfolio manager and investment advisor at Raymond James, welcomes the arrival of this tool that should be published at the end of 2022.

“There is a need to strengthen the rules surrounding the identification of the ESG acronym,” he says. There are always new products that appear on the market, and we see that they do not all have the same definition of responsible investment and ESG criteria. This makes investors easily lost. »

They are not the only ones who wonder. “In various studies, advisors clearly admitted that they would have talked more about ESG products if they understood them better,” adds Ms. Hagerman. Having an identification framework will not only help consumers better understand what they are buying, but also advisors who will be able to better guide their clients. »

SUPPLY AND DEMAND

The future identification framework will classify the universe of responsible, sustainable and ESG funds listed and domiciled in Canada into six categories. Among them are impact investing which will include funds that intend to generate a measurable social impact, ESG thematic investments which will include clean technology and board diversity funds. There will also be the best in class (best in class), i.e. the main ESG funds.

Will this product clarification exercise affect supply? “It could slow down the issue of new products, but it will not be linked to consumer demand that will continue to grow over time, predicts Ms. Hagerman. More and more investors are waking up to ESG investments because they help build a world better, but also because companies that take these criteria into account offer good returns over time.”

ETF OR FCP?

The question arises for investors who want to invest in ESG. With the wide variety of products on the market, which one to choose between ETF and mutual funds (FCP)?

For her part, Mary Hagerman still says she’s a fan of funds without active management.

“Investors who are challenged by a rather passive approach will be well served by ETFs,” he says. Management costs are lower. »

That said, supporters of active management will also find their account. Thanks to the application of filters, it is possible to find products that have the desired characteristics and that compare to the reference index.

However, investors should fully understand what they are investing in. One of the advantages of mutual funds is that the transactions are done through a brokerage account. However, expect to pay higher fees.

“We cannot say that we are always better served with an ETF. It depends on the expectations of investors,” concludes Hagerman.

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