This article was originally published on ETFTrends.com.
DWS Group today announced the launch of Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG) , which was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The expense ratio for USSG is 0.10%, which is well below the average cost of 0.39% for ESG funds, making it ideal for investors who are also seeking a low-cost solution to add ESG to their portfolios.
“With USSG, we now bring the ability for investors to access domestic equity,” Fiona Bassett, Global Co-Head of Passive Asset Management and Global Co-Head of Product, DWS Group, told ETF Trends. “Critically, it will be the most cost-effective ESG ETF in the marketplace.”
"We would like for our clients to do well and do good, but not pay a premium for that," added Bassett.
USSG provides exposure to large- and medium-cap U.S. companies with high environmental, social and governance (ESG) performance relative to their sector peers.
"We're focused on bringing better solutions to the marketplace that provide innovation, value and access to our clients," said Bassett. "ESG is a strategic focus for us. As a European provider we have a long heritage in this space that goes back over 20 years."
As of this March 7, the USGG has now become the largest fund launch in the last 15 years with $846M+ AUM.
The notable fund launch underscores the growing trend of institutional assets flowing into ESG and increased popularity of ETF products among this group.
ESG Adoption Increasing
Although the idea of socially responsible ETFs that focus on environmental, social and governance (ESG) is not relatively new, it’s still struggling to break into the investment mainstream, particularly within the U.S. Socially-responsible investing may be turning a corner, however, as demand for ESG fixed income products exceeded supply in Europe, according to new research by Cerulli Associates.
The report revealed that inflows into ESG fixed-income products surpassed $11.4 billion the last two years, but a shortage of benchmark indexes that measure ESG-focused criteria makes it difficult for its inclusion in the asset class. However, an influx of new ESG products into the market over the next few years like USSG could help appease increased demand in the U.S.
Bassett is confident that ESG will eventually gain traction within the U.S. capital markets.
"I think you'll see ESG becoming increasingly important to U.S. investors," said Bassett. "You can already see this taking place with the dialogue that is happening across the institutional and retail spectrum."
Furthermore, while ESG ETFs are still vying for market share in the ETF space, it appears to be progressing with the advent of new products meeting demand. In fact, sustainability is one DWS’s four core values, not only from an investment perspective, but also as a financial market participant.
A Best-in-Class Approach
USSG is an expansion of the Xtrackers suite of ESG ETFs, which also includes the Xtrackers MSCI ACWI ex USA ESG Leaders Equity ETF (NYSE Arca: ACSG) , the Xtrackers MSCI Emerging Markets ESG Leaders Equity ETF (NYSE Arca: EMSG) and the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG) .
USSG seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI USA ESG Leaders Index. In order for companies to be included in the fund, the methodology includes a comprehensive screener that filters out alcohol, weapons, gambling, and other controversial products or activities.
Next, an ESG rating is applied that assesses risk and opportunities in order to select companies that will eventually be part of a ranking process. From here, only the top companies with the best ESG ratings are selected by sector.
"The methodology is a best-in-class approach that seeks to invest in companies with the highest ESG ratings in each sector while maintaining sector neutrality," said Bassett.
"One of the benefits of this is that it brings transparency to the industry around the ESG topic," added Bassett.
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