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number cruncher

What are we looking for?

Sustainable exchange-traded funds that have outperformed peers.

The screen

On the heels of its proposal in October that would require issuers of Canadian-listed securities to report climate-related risks and greenhouse gas emissions, the Canadian Securities Administrators last week issued a staff notice offering guidance to investment fund companies on how to disclose sustainable investment considerations.

The intent of the guidance is ultimately to prevent misleading environmental, social and governance information as it relates to the practices of a particular fund, also known as greenwashing.

Not by coincidence, Morningstar’s data have shown that assets invested in sustainable funds and ETFs have nearly doubled to $34.5-billion from $17.4-billion over the course of 2021.

It will take some time for regulatory guidance to make its way to filings. Meanwhile, by analyzing a fund’s prospectus, firms such as Morningstar are able to compile lists of funds that have stated they utilize a sustainable investment approach.

Moreover, Morningstar’s data show these sustainable funds perform more or less like their traditional counterparts (funds that don’t explicitly state their sustainable intention in filings) in that roughly half of these funds have outperformed their peers after fees on a one-year, three-year, five-year and 10-year trailing basis. For the do-it-yourself investor who has interest in these types of products, today’s screen looks to find ETFs from Canadian-domiciled fund companies that:

  • Morningstar has deemed sustainable through an analysis of prospectus language;
  • Have received a Morningstar Rating (informally known as the star rating) of four or five stars, showcasing the fact that the funds have outperformed peers on an risk-adjusted basis after fees.

Readers are reminded sustainable investing is not binary. In fact, Morningstar broadly describes three sustainable approaches: 1) those that utilize measures of ESG risks as core inputs to their decision process; 2) those that seek to make a measurable impact in an area such as gender and diversity, or fossil fuels; and 3) those that invest broadly in an environmental sector such as clean technology or water resourcing. Funds stating they use one or more of these approaches are marked as sustainable funds within Morningstar’s framework.

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

Canadian-listed sustainable ETFs

Exchange-traded fundTickerMER (%)Morningstar CategoryMorningstar Rating OverallInception DateYTD Ttl. Rtn. (%)1Y Ttl. Rtn. (%)3Y Ann. Ttl. Rtn. (%)5Y Ann. Ttl. Rtn. (%)10Y Ann. Ttl. Rtn. (%)
AGFiQ Global ESG Factors ETFQEF-NE0.45Global Equity4 Stars2018-02-12-7.35.513.1n/an/a
BMO Women In Leadership ETFWOMN-T0.36North Amer. Eqty.4 Stars2018-05-24-8.411.713.8n/an/a
Desjardins RI Can Low CO2 ETFDRMC-T0.29Canadian Equity5 Stars2018-09-27-4.120.214.6n/an/a
Desjardins RI USA Low CO2 ETFDRMU-T0.29U.S. Equity4 Stars2018-09-27-8.011.919.2n/an/a
Horizons Global Sustainability Ldrs ETFETHI-T0.54Global Equity5 Stars2018-10-31-8.28.524.4n/an/a
Invesco ESG Cdn. Core Plus Bond ETFBESG-T0.49Cdn. Fixed Income4 Stars2012-08-09-3.4-4.53.32.6n/a
iShares Jantzi Social ETFXEN-T0.55Canadian Equity4 Stars2007-05-14-1.722.611.37.98.7
RBC Vision Women's Ldrsp MSCI CdaRLDR-NE0.29Canadian Equity4 Stars2018-03-05-3.518.012.6n/an/a

Source: Morningstar Direct. Data as of Jan. 24

The ETFs that met the above requirements are listed in the table, alongside their management expense ratios, ratings, category and trailing performance. As a part of a broader asset allocation, investors are urged to first look at the category to which a fund belongs to first understand where the assets may fit into their portfolio before drilling down into a specific fund.

This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

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

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