RDMX: effective ESG solution for developed markets

AAs the universe of environmental, social and governance (ESG) exchange-traded funds expands and more investors focus on sustainable strategies, more market participants are prioritizing to reducing congestion. In other words, ESG ETF adopters want simplicity

AAs the universe of environmental, social and governance (ESG) exchange-traded funds expands and more investors focus on sustainable strategies, more market participants are prioritizing to reducing congestion.

In other words, ESG ETF adopters want simplicity and avoid controversies such as greenwashing. When it comes to associating ESG with stocks in developed markets outside of the US, the SPDR Bloomberg SASB Developed Markets Ex US ESG Select ETF (RDMX) helps investors achieve these goals.

RDMX, which debuted in January, tracks the Bloomberg SASB® Developed Markets ex US Large & Mid Cap ESG Ex-Controversies Select Index, which can be considered an ESG alternative to standard international developed market benchmarks such as MSCI EAFE Index. Additionally, RDMX’s straightforward approach is a plus for new and seasoned ESG investors.

“To put an end to investors who are unfamiliar with how ESG information is used, there is often confusion and disappointment when they see companies they perceive to have a negative societal impact in a portfolio of sustainable funds. But few sustainable funds evaluate their investments solely on the basis of broader societal impact,” wrote Morningstar analyst Jon Hale.

RDMX’s underlying index not only focuses on companies with favorable ESG characteristics, but it seeks to avoid those that may be more prone to ESG controversies. As for the objectives of the index, it’s easy to understand. This is important because considerable debate remains regarding inputs, ratings and ESG ratings.

“There is great confusion between approaches that use information about material environmental, social and governance issues to arrive at a more holistic view of an investment and those that focus on the broader societal impact of an investment. In fact, ESG best describes the metrics and ratings that contribute to investment decisions,” Hale added.

RDMX holds 443 stocks, giving investors a solid representation of which ex-US developed markets provide investors with strong ESG credentials. Japan, the UK, France and Canada together make up more than 54% of the ETF range.

As is the case with many strategies in international developed markets, RDMX has a value bias, with the financials, industrials, consumer staples and healthcare sectors combining for around 58% the fund’s weighting. In addition to value, some of these groups offer quality characteristics, including growing dividends and a clear absence of ESG controversies.

RDMX sports an inexpensive annual expense ratio of 0.12%, or $12 on a $10,000 stake.

For more news, insights and strategy, visit the ESG channel.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.