Is iShares ESG Aware MSCI USA ETF (ESGU) a Strong ETF Right Now?

The iShares ESG Aware MSCI USA ETF (ESGU) made its debut on 12/01/2016, and is a smart beta exchange traded fund that provides 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.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is sponsored by Blackrock. It has amassed assets over $20.73 billion, making it the largest ETF in the Style Box - All Cap Growth. This particular fund, before fees and expenses, 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

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.15% for ESGU, making it one of the cheaper products in the space.

It's 12-month trailing dividend yield comes in at 1.49%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

For ESGU, it has heaviest allocation in the Information Technology sector --about 29.80% of the portfolio --while 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 -23.73% so far this year and is down about -18.42% in the last one year (as of 09/26/2022). In the past 52-week period, it has traded between $81.27 and $108.46.

ESGU has a beta of 1.01 and standard deviation of 24.71% 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 $5.47 billion in assets, iShares ESG Aware MSCI EAFE ETF has $5.88 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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iShares ESG Aware MSCI USA ETF (ESGU): ETF Research Reports
 
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iShares ESG Aware MSCI EAFE ETF (ESGD): ETF Research Reports
 
Vanguard ESG U.S. Stock ETF (ESGV): ETF Research Reports
 
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