iShares, the world’s largest exchange-traded fund sponsor, filed paperwork with the U.S. Securities and Exchange Commission to bring to market an equities ETF that excludes companies in countries with human rights violations, adding another choice to an existing lineup of two iShares funds focused on so-called socially responsible investing.
The iShares Human Rights Index Fund aims to exclude countries associated with widespread death, torture, rape, slavery, forced labor and forced displacement of communities. The underlying index is a subset of the MSCI All Country World Index, which is whittled down to countries with acceptable human rights records based on MSCI data as of the end of January 2012.
With human rights in the spotlight lately due to the recent rebellions against despots in Syria and Libya, iShares couldn’t have picked a more appropriate time to register its new fund. Socially responsible investing has existed at the margins of the finance world but it is receiving more attention due to rising awareness of issues such as global warming and turmoil in countries such as oil-rich Sudan.
iShares sponsors the two most successful social-values-based ETFs:the $176.8 million iShares MSCI USA ESG Select Social Index Fund (NYSEArca:KLD - News) and the $168.9 million iShares MSCI KLD 400 Social Index Fund (NYSEArca:DSI - News). Both ETFs have an annual expense ratio of 0.50 percent.
iShares didn’t disclose a ticker or an expense ratio for the planned human rights ETF.
iShares Success The Exception
While iShares has had success attracting investors to its socially conscious ETFs, DSI and KLD, the record on funds based on do-gooder sentiments and social conscience is mostly disappointing.
Pax World, the Portsmouth, N.H.-based money management firm, has two funds based on social environmental and governance screens, the Pax MSCI EAFE ESG Index ETF (NYSEArca:EAPS - News) and the Pax MSCI North American ESG Index ETF (NYSEArca:NASI - News). Together, the two funds had combined assets of $14.2 million as of March 4, according to data compiled by IndexUniverse.
Even worse, last year, Tulsa, Okla.-based FaithShares closed shop after its five funds linked to particular pockets of the Christian world failed to attract more than about $10.5 million.
The funds were too fine-tuned for their own good, the chief executive of the company told IndexUniverse a short time after the company closed, but in a larger sense, the low assets at both FaithShares and Pax World speak to the difficulty socially minded strategies have gaining investors’ attention.
Human Rights ETF Index Methodology
The iShares Human Rights Index Fund will use a representative sampling strategy to achieve its investment objectives, meaning it won’t own all the securities screened.
As of Dec. 31, 2011, the underlying index consisted of 8,905 companies. They were located in the following countries:Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Malaysia, Mexico, Morocco, the Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Portugal, Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and the United States.
Although this fund is based primarily in stable countries, the prospectus warns that the ETF may face numerous market trading risks, including losses from trading in secondary markets, periods of high volatility, and potential lack of an active market for the ETF’s shares.
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