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A New Force Among ESG ETFs

ETF Professor

Exchange traded funds focusing on environmental, social and governance, or ESG, investing principles have been around awhile, but many of these funds have struggled to captivate investors' attention and assets.

The result is that ESG ETFs represent a scant percentage of the growing, broader ETF universe, but the tide could be turning in favor of ESG funds.

What Happened

Last Thursday, Deutsche Bank's DWS unit introduced the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE: USSG) and that fund is off to a stellar start. As of March 7, USSG had just over $846 million in assets under management, already placing it among the largest U.S.-listed ESG ETFs.

As has been noted in some industry circles, USSG's swift influx of assets is likely attributable to the fund's partnership with Ilmarinen, Finland's largest pension insurance company.

Why It's Important

While it's a nice assist for the newly minted USSG to benefit from the partnership with Ilmarinen, the ETF's assets under management tally shows institutional investors are willing to embrace ESG strategies, which could prompt more investors to do the same.

With $846 million in assets under management, the new ETF from DWS is already the third-largest ESG trading in the U.S., trailing only the $1.28-billion iShares MSCI KLD 400 Social ETF (NYSE: DSI) and the $892.73-million iShares MSCI USA ESG Select ETF (NYSE: SUSA). SUSA is more than 14 years old, while DSI is more than 12 years old.

Costs could be one driving force that lures investors to USSG. With an annual fee of 0.1 percent, or $10 on a $10,000 investment, USSG is the cheapest equity-based ESG ETF in the U.S. and tied with the iShares ESG U.S. Aggregate Bond ETF (NYSE: EAGG) for the least-expensive ESG ETF.

What's Next

It remains to be seen whether USSG can keep up this level of asset-gathering acumen, but if it can do so over the near-term, the fund stands a reasonable chance of residing among ETFs that climbed fastest to $1 billion in assets.

USSG holds 337 stocks, 30.1 percent of which hail from the technology sector.

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