Can new ESG funds maintain their fledgling gains?

Asset manager DWS has launched a set of new funds that target the United Nation’s Sustainable Development Goals as an innovative way to help investors meet their ESG targets. Out of the seven new funds lined up, three have been launched and are performing well, with the ESG sector hoping for a strong year of returns.

- DWS launches seven new funds targeting UN Sustainable Development Goals.

- The new funds have gained as much as 11% since launching last month.

- TSMC and Vestas Wind Systems attract fund attention with innovative recycling programs.

DWS Xtrackers is in the process of launching seven ETFs that are focused on the United Nations’ (UN) Sustainable Development Goals (SDGs). Six of the seven funds will each target individual goals set by the UN, while the remaining fund – the Xtrackers MSCI Global SDGs UCITS ETF [XDGI.L] – will invest based on the wider SDG strategy.

Of the 17 different SDGs outlined by the UN, Xtrackers will focus funds on health, clean water, clean energy, infrastructure innovation, sustainable cities and the circular economy. The latter three of these were listed on 19 January, while the other four are expected to launch soon.

SDG funds perform well in market debut

The Xtrackers MSCI Global SDG 9 Industry, Innovation & Infrastructure ETF [XDG9.L], SDG 11 Sustainable Cities ETF [XG11.L] and SDG 12 Circular Economy ETF [XG12.L] were all launched on January 19 this year. According to data from the Financial Times XG11 has gained 10.7% since launch, XG12 has jumped 8.5% and XDG9 is up 5%.

The Circular Economy ETF focuses on investing in companies that promote the recycling and reuse of materials and products. As of 3 February, the fund’s top holding at 4.98% of assets under management is chip manufacturer TSMC [TSM], which invests in innovative recycling methods. The company’s share price has rallied 23.1% since the beginning of the year.

The fund’s second-largest holding, Vestas Wind Systems [VWS.CO], is looking to improve the recycling of wind turbines over the coming years. By targeting companies with these strong recycling goals, the fund is betting on the advantages of mitigating future risks caused by diminishing raw material supply.

Hopes for a strong outlook after a weak year for ESG

DWS Xtrackers is launching the seven funds after a relatively poor year within the environment, social and governance (ESG) space.

As of early December, for example, the MSCI World ESG Leaders Index had fallen 15% in 2022, while the MSCI World Index, which represents the market average across a number of countries, saw a somewhat better performance, falling by 14%.

The oil industry, which ESG-focused funds tend to avoid, performed well. Tech stocks, which such funds tend to gravitate towards, had a notoriously difficult year. In light of this, among other factors, it may come as no surprise that the ESG funds have struggled in the last 12 months.

Nevertheless, rising pressures to shift away from fossil fuels are pushing asset owners to expand their emissions disclosures, which could stimulate a shift towards the environmentally-conscious shares held by the new Xtracker funds.

TSMC, the Xtracker MSCI SDG 12 Circular Economy ETF’s largest holding, currently has a strong outlook, according to 33 analysts polled by Refinitiv; of these, 11 gave ‘buy’ ratings, 20 ‘outperform’ and two ‘hold’.