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

Making its debut on 12/01/2016, smart beta exchange traded fund iShares ESG Aware MSCI USA ETF (ESGU) provides investors broad exposure to the Style Box - All Cap Growth category of the market.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is managed by Blackrock, and has been able to amass over $25.03 billion, which makes it the largest ETF in the Style Box - All Cap Growth. ESGU seeks to match the performance of the MSCI USA ESG Focus Index before fees and expenses.

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

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining 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.

It has a 12-month trailing dividend yield of 1.12%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

Representing 31% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Healthcare and Consumer Discretionary round out the top three.

When you look at individual holdings, Microsoft Corp (MSFT) accounts for about 5.85% of the fund's total assets, followed by Apple Inc (AAPL) and Amazon Com Inc (AMZN).

Its top 10 holdings account for approximately 27.39% of ESGU's total assets under management.

Performance and Risk

So far this year, ESGU has lost about -5.06%, and is up about 20.14% in the last one year (as of 01/19/2022). During this past 52-week period, the fund has traded between $85.57 and $108.46.

ESGU has a beta of 1 and standard deviation of 22.44% for the trailing three-year period. With about 334 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.

IShares ESG Aware MSCI EM ETF (ESGE) tracks MSCI Emerging Markets ESG Focus Index and the iShares ESG Aware MSCI EAFE ETF (ESGD) tracks MSCI EAFE ESG Focus Index. IShares ESG Aware MSCI EM ETF has $6.27 billion in assets, iShares ESG Aware MSCI EAFE ETF has $7.62 billion. ESGE has an expense ratio of 0.25% 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
 
iShares ESG Aware MSCI EM ETF (ESGE): ETF Research Reports
 
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