Each new generation looks at the world—and their investments—differently than the last. But the impact the Millennial generation (those born between 1980 and 1995) is having on the investing landscape is truly outsized, according to Sharon French, Head of Beta Solutions.
A remarkable 76% of Millennials “care more about having a positive impact on society than doing well financially,” compared to just 42% of older investors, according to a TIAA survey in 2015 of 2,200 U.S. residents with $100,000 in investable assets.
Over 60% of investors under 35 years of age expect their wealth managers to screen investments based on environmental, social and governance (ESG) factors. This compares to just 29% of Baby Boomers age 55 and older, according to a recent FactSet survey of 1,000 investors in the U.S., U.K., Singapore and Switzerland, with an average net worth of $6.2 million.
“This is as massive a shift in attitudes as we’ve ever seen,” says French. In response, more than 80% of Standard & Poor’s 500 companies are reporting ESG factors, up from just 20% in 2011. We are harnessing this increasing transparency in two of our new ETFs focused on ESG factors, one centered around major domestic companies, and the second composed of companies around the globe.
And the second composed of companies around the globe:
Aligning investments to the investor’s personal values will be increasingly important in coming years, says French.
A recent study of ultra-high-net-worth (UHNW) Millennials surveyed by OppenheimerFunds and Campden Wealth found the next generation of investors are planning some changes to their portfolios.
The study found almost half of Millennials coming from families with a net worth in excess of $35 million reported that their family portfolios do not contain any values-based considerations, yet 80% want at least some of their portfolios to contain values-based considerations.
These new OppenheimerFunds ETFs use ESG scores from third parties to take into account a company’s values in action, according to Vince Lowry, Lead Portfolio Manager of the Oppenheimer Revenue Weighted Strategy Team. In the end, less than half of the S&P 500 Index make the cut, and less than a quarter of the 2,400 companies in the MSCI All Country World Index are included.
But the ETFs don’t stop there. They then weight the remaining companies based on revenues rather than market capitalization, which studies show produces higher returns over most time horizons. At the retail investing level in the U.S., interest in ESG investing has been fairly minimal so far, according to French.
But with up to $30 trillion of assets expected to flow from Baby Boomers to Millennials over the course of the next several decades, there may be an enormous growth in ESG investing, and the smart players on Wall Street are getting ready. ESG is not just for Millennials, today’s older investors can also profit from socially responsible investing by mitigating risk, French noted. If an investor had limited themselves to companies with above-average environmental and social scores, they would have avoided 90% of bankruptcies since 2008 among companies reporting ESG data, a recent Bank of America Merrill Lynch study found.
Advisors need to educate themselves and their clients about the opportunities ESG investing presents. “Over time, high ESG scores tend to result in positive effects on investment performance,” says French. “It’s not only about changing the world, it’s about understanding how the world is changing.”
Lift the hood on what we believe investors need to know about ESG investing.
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The MSCI ACWI is a free float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed and emerging markets. The index is unmanaged, includes the reinvestment of dividends and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.
Mutual funds and exchange-traded funds are subject to market risk and volatility. Shares may gain or lose value.
Special Risks: The stocks of companies with favorable ESG practices may underperform the stock market as a whole. Fund returns may not match the return of its respective index, known as non-correlation risk, due to operating expenses incurred by the Fund. The alternate weighting approach employed by the Fund (i.e., using revenues as a weighting measure), while designed to enhance potential returns, may not produce the desired results. Because the Fund is rebalanced quarterly, portfolio turnover may exceed 100%. The greater the portfolio turnover, the greater the transaction costs, which could have an adverse effect on Fund performance.
Bonds are exposed to credit and interest rate risks (when interest rates rise, bond prices generally fall). Equities are subject to market risk and volatility, they may gain or lose value.
These views represent the opinions of the portfolio managers at OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.