The pandemic has proved to be a key factor in changing the global economic model. It was the ultimate occasion that the world economy was looking for to "turn" sharply into a new era.

For now, the amount of fiscal support worldwide exceeds $ 5 trillion. and this is money available to fund the recovery of the world economy, but this time through huge green development projects.

At the same time, "green" corporate financing is constantly recording records in capital inflows, companies innovating in the green energy sector are gaining significant funds and are ready to really change the way people’s activities are fueled by energy in the coming decades.

The investment trend in the ESG sector is expected to be significantly reinforced by the fact that the growth of ETFs is in its own "golden age". There are already over 50 ETFs designated as ESGs. Some of them invest in specific sectors of the economy (photovoltaics) and others have a wider investment distribution in all sub-sectors of green energy. In addition, more than 100 new ETFs are already expected to invest exclusively in the ESG industry.

Until the outbreak of the pandemic in March 2020, ESG ETFs had total assets under management significantly below $ 100 billion. Almost a year after the outbreak of the pandemic and the total managed funds of relevant ETFs have exceeded $ 135 billion, while according to Bloomberg estimates, by 2025 total funds will have reached $ 1 trillion and $ 53 trillion worldwide and will account for 35% of the global market for ETFs and total managed funds.

For now, Europe accounts for almost 50% of this market with green bond issues breaking every record in the first months of 2021, following an astonishing 2020. From 2022, it is expected that America will be able to start increasing its overall footprint in this market, while the funds invested in Japan and China are huge. Both of these countries are expected to bring strong profits to those who manage to perceive the momentum of the sector for the coming years.

The beginning of a new global investment trend

Social bonds issues, aimed at relieving economies from the effects of the pandemic, has opened a new path for bond issues. The ESG bond market already reaches $ 2.2 trillion worldwide and is expected to exceed $ 11 trillion in the next five years.

Europe’s example seems to be spreading all over the world. In Europe, 10% of total funds that are under management are in ESG ETFs or other funds. And this trend does not stop here but also expands to the shares, which is completely normal.

Although the historical sample of ESG ETFs is particularly small as their development has only started in the last two years, it becomes clear that in the last six months they have started to perform much better than the traditional indices. The reason why this is happening, is because the investment funds are directed more towards companies in the ESG sector and these companies are the ones which ultimately offer significant returns in a portfolio. And if this is just the beginning, it will become even more apparent in the coming months. The following graph is clear.

ESG ETFs profile

ESG ETFs gather strong quality characteristics, which makes them dominant investment choices for the coming years. Their composition consists of both historical companies which have as their main or even exclusive object "Green" energy, as well as giant companies which are rated very high on the ESG scale.

All of the above give unique features that one can currently find separately in value and growth sectors. Growth is what gives strong returns in the future, while the combination of the two characteristics with the strong capital flows, increases the defense characteristics of the sector.

As pressure from investors, fund managers and credit rating agencies continues to intensify, historic companies with low ESG scores will be forced to apply appropriate upgrade practices to maintain their ratings and thereby have access to investment funds and cheap bond lending.

XSpot Growth ESG

At XSpot Wealth, we fully understand the momentum the ESG investment trend and we have created a portfolio that offers exposure to the most important ESG trends, while maintaining all the elements that characterize our investment portfolios: low cost, transparency, active management and achieving maximum capital protection even for our most aggressive strategies. The result is captured in the chart below, where the XSpot Growth ESG portfolio not only performed just better in February-March 2020, but actually much better than both S&P 500 and the relevant Bloomberg benchmark index.