Leading money manager and fund issuer Invesco has just added two ESG funds to its QQQ Innovation Suite of ETFs. The two ESG funds are Invesco ESG Nasdaq 100 ETF (QQMG) and Invesco ESG Nasdaq Next Gen 100 ETF (QQJG).
This brings the total to six funds in the QQQ Innovation Suite – a partnership between Invesco and Nasdaq that dates back to 1999 when the flagship Invesco QQQ ETF (QQQ) was launched. The common denominator is the parent indexes, Nasdaq-100 index and Nasdaq Next Gen 100, which track non-financial large-cap growth companies.
The main distinction between the two parent indexes, Nasdaq-100 and Nasdaq Next Gen 100, is that the latter includes the largest 100 Nasdaq-listed firms outside of the Nasdaq-100 index based on market capitalization. Thus, the focus lies on next-generation innovative companies.
While about half of the index holds tech companies, the other half includes members of other sectors and industries. Regardless of the sector, however, many of those companies spend a significant amount on research and development.
“For this reason, they are often well-positioned to capitalize on transformative, long-term themes in the marketplace, such as the technology driving clean energy and sustainable resources,” stated Invesco in the press release.
The ESG-specific characteristics add an additional layer to these two new funds. Each fund holds at least 90% of its assets in securities of the respective underlying ESG indexes, Nasdaq-100 ESG Index and Nasdaq Next Generation 100 ESG Index. Companies in both ESG indexes meet the environmental, social, and governance (ESG) criteria required for inclusion in the indexes.
This means that they cannot be involved in cannabis development or cultivation, military weapon manufacturing, oil sands extraction, riot protection equipment, and riot control weapons, shale energy exploration or production, Arctic oil and gas exploration, as well as tobacco product makers.
A maximum of 5% of a company’s revenues can come from adult entertainment, alcoholic beverage production, distribution or sale, cannabis distribution, gambling, nuclear power production, oil and gas exploration and production, assault weapons or small arms distribution, thermal coal, and tobacco product distribution.
Each company must comply with the United Nations Global Compact principles and not exceed specific business controversy thresholds. Nasdaq uses Sustainalytics’ ESG Risk Rating scores to determine which issuers make it into the index.
“Invesco has been fortunate to work in lockstep with Nasdaq for almost two decades, finding beneficial ways to offer investors all over the globe access to Nasdaq-listed companies,” said Anna Paglia, global head of ETFs & indexed strategies at Invesco. “Today’s launch will mark our continued collaboration. We are confident that the new Invesco QQMG and QQJG ETFs will bridge innovation and ESG to offer every type of investor a unique way to help meet their desired investment outcomes.”
By launching the new ESG ETFs, Invesco has expanded investors’ access to its existing Invesco NASDAQ 100 ETF (QQQM) and Invesco NASDAQ Next Gen 100 ETF (QQQJ), but with a tilt toward ESG. Only six firms in the Nasdaq-100 index did not make it for inclusion in the Nasdaq-100 ESG index, while 10 companies were excluded from the Nasdaq Next Generation 100 ESG index.
“The interest in integrating ESG considerations into investment portfolios is on the rise globally. We are pleased to work with Invesco to introduce a refined and ESG-friendly version of one of the world’s most preeminent benchmarks,” said Lauren Dillard, executive vice president and head of investment intelligence at Nasdaq.
