Best Impact Investing ETFs for Q1 2022

A growing number of investors are placing billions of dollars into socially responsible impact investing funds, which are also known as environmental, social, and governance (ESG) funds. These portfolios select stocks based on a company’s ESG practices, along with more traditional financial measures. This has spawned a new family of exchange-traded funds (ETFs) that focus on investing criteria for the social good. These relatively new ETFs allow investors to achieve diversification while owning companies that follow specific ESG criteria.

There are 37 distinct impact investing ETFs that trade in the U.S. with an ESG score of 9.0 or higher out of 10 from ETFdb.com, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). Impact investing securities, as measured by the S&P 500 ESG Index, have outperformed the broader market over the past year. The index has provided a total return of 30.4% compared to the S&P 500’s total return of 27.6%, as of Dec. 21, 2021. The best-performing impact investing ETF, based on performance over the past year, is the iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI). We examine the best three impact investing ETFs below. All numbers below are as of Dec. 20, 2021.

• Performance Over One-Year: 39.6%
• Expense Ratio: 0.41%
• Annual Dividend Yield: 1.02%
• Three-Month Average Daily Volume: 88,205
• Assets Under Management: $963.0 million
• Inception Date: May 1, 2006
• Issuer: BlackRock Financial Management

IAI is a multi-cap fund that targets the Dow Jones U.S. Select Investment Services Index, an index comprised of U.S. equities in the investment services sector. The fund holds stocks of U.S. investment banks, discount brokerages, and stock exchanges. Just over three-quarters of the fund’s assets are invested in investment banking and brokerage stocks, with most of the remainder focused on financial exchanges and data stocks. The fund takes a blended approach, including both growth and value stocks in its portfolio. The top holdings include Morgan Stanley (MS); Goldman Sachs Group Inc. (GS); and class A shares of CME Group Inc. (CME). The first two of these are multinational investment banks and financial services companies, while the third is a global markets company and financial derivatives exchange.

• Performance Over One-Year: 35.2%
• Expense Ratio: 0.35%
• Annual Dividend Yield: 0.50%
• Three-Month Average Daily Volume: 3,802,062
• Assets Under Management: $7.2 billion
• Inception Date: May 5, 2000
• Issuer: VanEck

SMH aims to track the MVIS U.S. Listed Semiconductor 25 Index, which is designed to gauge the performance of companies engaged in semiconductor production and equipment. The ETF provides exposure to 25 of the largest companies involved in the production of semiconductors. Just over three-quarters of its holdings are companies based in the U.S., while the rest of the fund is comprised of companies based in Taiwan, the Netherlands, and Switzerland. It follows a blended strategy, investing in a mix of both value and growth stocks of large-cap companies. The fund’s top three holdings include sponsored American depositary receipts (ADRs) of Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), a semiconductor manufacturer; NVIDIA Corp. (NVDA), a manufacturer of computer graphics processors, chipsets, and related multimedia software; and ADRs of ASML Holding NV (ASML), a Netherlands-based manufacturer of semiconductor equipment.

• Performance Over One-Year: 34.6%
• Expense Ratio: 0.12%
• Annual Dividend Yield: 1.51%
• Three-Month Average Daily Volume: 59,051,276
• Assets Under Management: $42.7 billion
• Inception Date: Dec. 16, 1998
• Issuer: State Street

XLF tracks the Financial Select Sector Index, which seeks to represent the financial sector of the S&P 500. XLF provides exposure to companies engaged in a wide variety of financial services, including insurance, banking, thrift and mortgage finance, real estate management and development, asset management, and more. Banks receive the largest allocation in the fund, followed by companies involved in capital market activity and insurance companies. It is focused on large-cap equities and follows a blended strategy of investing in both growth and value stocks. The fund’s top three holdings include Class B shares of Berkshire Hathaway Inc. (BRK.B), a provider of insurance, utilities and energy, freight rail transportation, manufacturing, retailing, and other services; JPMorgan Chase & Co. (JPM), a multinational investment bank and financial services holding company; and Bank of America Corp. (BAC), a multinational provider of banking and other financial services.

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