Launched on 12/01/2016, the iShares ESG Aware MSCI USA ETF (ESGU) is a smart beta exchange traded fund offering broad exposure to the Style Box – All Cap Growth category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.
Fund Sponsor & Index
ESGU is managed by Blackrock, and this fund has amassed over $20.27 billion, which makes it the largest ETF in the Style Box – All Cap Growth. Before fees and expenses, ESGU seeks to match the performance of the MSCI USA ESG Focus Index.
The MSCI USA Extended ESG Focus Index comprises of U.S. companies that have positive environmental, social and governance characteristics while exhibiting risk and return characteristics similar to those of the parent index.
Cost & Other Expenses
For ETF investors, expense ratios are an important factor when considering a fund’s return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Operating expenses on an annual basis are 0.15% for this ETF, which makes it one of the cheaper products in the space.
The fund has a 12-month trailing dividend yield of 1.48%.
Sector Exposure and Top Holdings
It is important to delve into an ETF’s holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
Representing 27.70% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Healthcare and Financials round out the top three.
When you look at individual holdings, Apple Inc (AAPL) accounts for about 7.30% of the fund’s total assets, followed by Microsoft Corp (MSFT) and Amazon Com Inc (AMZN).
Its top 10 holdings account for approximately 25.72% of ESGU’s total assets under management.
Performance and Risk
The ETF has lost about -18.04% so far this year and is down about -14.88% in the last one year (as of 11/29/2022). In the past 52-week period, it has traded between $79.22 and $108.46.
The ETF has a beta of 1.01 and standard deviation of 25.51% for the trailing three-year period. With about 311 holdings, it effectively diversifies company-specific risk.
Alternatives
IShares ESG Aware MSCI USA ETF is a reasonable option for investors seeking to outperform the Style Box – All Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.
Vanguard ESG U.S. Stock ETF (ESGV) tracks FTSE US ALL CAP CHOICE INDEX and the iShares ESG Aware MSCI EAFE ETF (ESGD) tracks MSCI EAFE ESG Focus Index. Vanguard ESG U.S. Stock ETF has $5.78 billion in assets, iShares ESG Aware MSCI EAFE ETF has $6.78 billion. ESGV has an expense ratio of 0.09% and ESGD charges 0.20%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box – All Cap Growth.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit
Zacks ETF Center
.
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