BlackRock has launched two new ETFs providing socially responsible exposure to US equities with growth or value characteristics.
The ETFs provide traditional US growth or value exposure but with a significant pick-up in ESG performance.
The iShares ESG Aware MSCI USA Growth ETF (EGUS US) and iShares ESG Aware MSCI USA Value ETF (EVUS US) have been listed on Cboe BZX Exchange with expense ratios of 0.18% each.
The funds have been designed to deliver similar risk and return profiles compared to traditional growth or value portfolios but with a significant pick-up in environmental, social, and governance (ESG) performance.
Methodology
EGUS and EVUS are linked to the MSCI USA Growth Extended ESG Focus Index and MSCI USA Value Extended ESG Focus Index, respectively.
The indices are constructed from the parent MSCI USA Growth and MSCI USA Value universes which comprise large and mid-cap stocks in the US that have been determined to fit the targeted style exposure.
MSCI’s ‘Extended ESG Focus’ investment approach first conducts values and business activity screening and then utilizes an optimization process to construct final portfolios that maximize exposure to ESG factors while maintaining risk characteristics similar to the original universes.
The first step involves removing companies embroiled in severe ESG-related controversies as well as firms with business operations linked to tobacco, controversial weapons, civilian firearms, oil sands, and thermal coal.
The second step harnesses MSCI’s ESG analytics platform – MSCI ESG Research – to assign each remaining constituent an ESG score on a seven-point scale between AAA and CCC based on the most relevant ESG factors by industry and risk exposure.
The optimization process then seeks to maximize each index’s overall ESG score while containing tracking error (relative to the original universes) within 75bps. The indices are rebalanced on a quarterly basis in March, June, September, and December.
As of the end of January, the MSCI USA Growth Extended ESG Focus Index contained 146 constituents compared to 286 in its original universe. Information technology stocks dominated with a combined weight of 45.3% followed by stocks from the consumer discretionary (15.6%), health care (12.0%), and communication services (10.1%) sectors. Notable positions included Apple (12.8%), Microsoft (10.7%), Alphabet (6.0%), Amazon (5.2%), and Nvidia (3.0%).
The MSCI USA Value Extended ESG Focus Index, meanwhile, contained 214 constituents compared to 415 in its original universe. The index’s sector exposure was more diversified with financials (18.0%), health care (17.0%), industrials (11.7%), information technology (11.6%), and consumer staples (10.7%) leading the top exposures. Notable positions included UnitedHealth (3.0%), Exxon (2.4%), JP Morgan (2.4%), and Coca-Cola (2.2%).