Sustainable ETFs for Income

Given that interest rates aren’t expected to rise astronomically, investors are likely still looking for sources of income.

Ian Tam, CFA 1 March, 2022 | 2:53AM
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Magnifying Glass in Forest

The market widely expects the Bank of Canada to increase rates over 2022, in an ongoing attempt to combat inflation. For income seeking investors, this might mean getting better yields from bond portfolios. However, given that rates aren’t expected to rise astronomically, investors are likely still looking for sources of income. Today, we seek to flush out some of these ideas in the ETF space, while at the same time keeping an eye on sustainability.

To do so, I used Morningstar Direct to screen the 1274 Canadian-domiciled ETFs for those that follow a sustainable investing approach, as defined by Morningstar’s analysis of prospectus documents. Given that the Canadian securities regulators just recently released guidance on how fund manufacturers are to disclose their ESG-related approaches in such documents, the landscape may very well morph over the coming year as funds renew their filings.

For now, Morningstar has identified a list of funds based on existing language. Morningstar broadly flags sustainable investments in 3 ways: (1) those that use ESG factors as a core input to their investment decision process, (2) those that seek to make a measurable impact around core themes like gender & diversity or reduction of fossil-fuels, and (3) those that invest broadly in an environmental sector, like water or clean technology. The flags are not mutually exclusive, and fund managers are known to use more than one approach.

The list of ETFs that follow a sustainable investing approach includes close to 100 options. But with the intent to derive a yield from the investment, I sorted the list based on their 12-month trailing yield (noting that the calculation includes capital gains, dividend and interest payments but does not include any return of capital payments), and have displayed the top 10 in the table, alongside their Morningstar Category, MERs, and trailing returns.

 

Name

Ticker

MER (%)

Morningstar Sustainability Rating

YTD Returns (%)

1-yr Returns (%)

3-yr Returns (%)

12-mo Yield (%)

Sector Fund

 

 

 

 

 

 

 

iShares Global Water ETF Comm

CWW

0.66

3 Globes

-13.29

11.62

14.26

3.29

Global Corporate Fixed Income

 

 

 

 

 

 

 

BMO ESG US Corporate Bond Hdg to CAD ETF

ESGF

0.23

4 Globes

-6.12

-4.48

 

3.07

Canadian Fixed Income

 

 

 

 

 

 

 

BMO ESG Corporate Bond ETF

ESGB

0.17

4 Globes

-4.40

-3.31

 

3.06

Invesco ESG Canadian Core Plus Bond ETF

BESG

0.49

3 Globes

-5.80

-3.78

2.02

3.03

Desjardins RI Active Can Bd Low CO2 ETF

DRCU

0.42

4 Globes

-4.70

-2.96

1.81

2.97

Canadian Equity

 

 

 

 

 

 

 

RBC Vision Women's Ldrsp MSCI Cnd ETF

RLDR

0.29

2 Globes

-0.96

17.24

11.87

2.96

BMO MSCI Canada ESG Leaders ETF

ESGA

0.17

4 Globes

-5.29

12.23

 

2.78

International Equity

 

 

 

 

 

 

 

BMO MSCI EAFE ESG Leaders ETF

ESGE

0.28

4 Globes

-6.92

1.94

 

2.68

Desjardins RI Dev exUSAexCan MFLowCO2ETF

DRFD

0.69

4 Globes

-6.26

0.20

4.53

2.52

Emerging Market Equity

 

 

 

 

 

 

 

Desjardins RI Em Mkts MF Low CO2 ETF

DRFE

0.74

3 Globes

-0.71

-3.42

 

2.53

               

Source: Morningstar Direct | Data as of Feb 25, 2022

 

 

 

 

 

 

The search did not include a screen for historical performance. Noting that many of these ETFs have less than a 3-year track record, Morningstar does not provide a Morningstar Star Rating for many of them. Additionally, the Morningstar Sustainability Rating (a.k.a. “Globe Ratings) are also included on the table but were not used in screening for ETFs. Recall that the globe ratings are a measure of the portfolio’s ESG risk, or financially material risks around environmental, social and governance factors.

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

 

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About Author

Ian Tam, CFA  Investment Specialist at Morningstar Canada. 

 

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