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What are we looking for?

Sustainable ETFs that have outperformed peers this year.

The screen

The world of responsible investing continues to develop at a rapid pace with new products coming to market suited for a myriad of investor tastes. In Canada, Morningstar has identified 115 sustainable funds by reviewing prospectus documents and qualifying those that hold sustainable investing themes at the core of the investment process. Of this universe of funds, 38 are exchange-traded funds. The merits of sustainable investing seem to be especially apparent during the COVID-19 pandemic. In the first six months of the year, it was found that more than half of these investments outperformed their respective peers. For ideas within this space, I used Morningstar Direct to screen for ETFs that:

  • Morningstar has identified as being sustainable, which encompasses funds that have a focus on ESG (environmental, social, governance) risk factors; impact funds (those that seek a measurable change in areas such as community development, gender and diversity, or carbon emissions – alongside financial gains for investors); or environmental sector funds (those that invest broadly in areas such as renewable energy).
  • Have a Morningstar Quantitative Rating of gold, silver or bronze. This is Morningstar’s forward-looking assessment of a fund’s prospective ability to outperform similar funds after fees, based on five factors: people (the quality of management team); process (the effectiveness and consistency of the investment process); parent (organizational structure and talent retention); performance; and price (fees). Over the long term, gold, silver and bronze funds are expected to outperform neutral and negative funds after fees.
  • Have ranked in the top third of peers within their Morningstar category based on year-to-date total returns.

More about Morningstar

Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisers, asset managers, retirement plan providers and sponsors, and institutional investors. Morningstar Direct is the firm’s multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.

What we found

Shown in the table are the funds that met the above requirements along with their ticker, category, associated fees, inception dates and returns. Also included in the table are the funds’ ranks based on after-fee total returns relative to the category to which the fund belongs (for example, ETHI is ranked in the eighth percentile among all Canadian-domiciled global equity mutual funds and ETFs tracked by Morningstar on a year-to-date basis). Most of these ETFs have launched in the past year or so, reflective of the continued innovation in the area of sustainable investments.

This column does not constitute financial advice. It is always recommended to speak to a financial adviser or investment professional before investing.

Select Canadian-domiciled sustainable ETFs

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Exchange-traded fundTickerMorningstar CategoryMorningstar Quant. RatingInception DateMER (%)YTD Ttl. Rtn. (%)1Y Ttl. Rtn. (%)YTD Percentile Morningstar Category Rank
Horizons Global Sustainability Ldrs. ETFETHI-TGlobal EquitySilver10/31/20180.6912.223.28
Desjardins RI USA Low CO2 ETFDRMU-TUS EquityBronze9/27/20180.2910.519.214
iShares ESG MSCI USA ETFXSUS-TUS EquitySilver3/18/20190.287.115.419
CI First Asset MSCI Wld. ESG Impact ETFCESG-NEGlobal EquityBronze9/17/20190.674.8n/a21
Fidelity Sustainable World ETFFCSW-NEGlobal EquitySilver5/31/20190.623.210.929
iShares ESG MSCI Emerging Mkts. ETFXSEM-TEmerg. Mkts. Eqty.Gold3/18/20190.361.98.423
iShares ESG MSCI Canada ETFXESG-TCanadian EquitySilver3/18/20190.23-6.5-1.932

Source: Morningstar Direct. Data as of July 14

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Ian Tam, CFA, is director of investment research for Morningstar Canada.

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