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IndexIQ & CANDRIAM Launch 2 ESG ETFs

Sweta Jaiswal, FRM

New York Life Investments company, IndexIQ recently launched two ETFs, namely, the IQ Candriam ESG US Equity ETF IQSU and the IQ Candriam ESG International Equity ETF IQSI. These ETFs provide broad market exposure to large and mid-cap companies that meet the environmental, social, and governance (ESG) parameters set by CANDRIAM, which stands for Conviction and Responsibility in Asset Management. Notably, CANDRIAM is a New York Life Investments boutique and a global multi-specialist asset manager with over two decades of experience in sustainable investing.

Notably, sustainable investing is in vogue with ESG investing forming a strong pillar of the platform. In fact, sustainable investing can cushion  the portfolio or help in diversifying some risks as 2020 will bring its own set of challenges given the U.S. presidential elections scheduled for November 2020, unpredictable monetary policies, Sino-US trade war uncertainty and slow global economic growth (read: Are ESG ETFs the Right Choice for 2020?).

IQSU and IQSI in a Nutshell

The new funds track the IQ Candriam ESG US Equity Index and the IQ Candriam ESG International Equity Index, respectively. Moreover, IQSU charges a fee of 9 basis points, while IQSI has an expense ratio of 0.15%.

Why ESG Investing?

Marked by continued technological advancement and digital revolution, there has been growing awareness about ESG among companies. Moreover, investors appear to be bothered about the future of the environment and the effect it might have on their portfolios. This is because ignorance of environmental issues by companies may result in lawsuits, fines and damages, per the source.

Highlighting the importance of ESG investing, Hubert Keller, head of Lombard Odier & Co.’s asset-management business, has said that sustainable investing can help in surpassing market returns. In this regard, he said, “for us, sustainability or ESG is an alpha source and it will be a major source of returns over the next two to three years and beyond.”

Per Morningstar Inc., funds that consider the ESG parameters in the investment strategies outperform those that do not. In fact, 73% of ESG indexes have been beating their non-ESG counterparts since inception.

Going by a 2018 survey conducted by Morgan Stanley, around 75% asset managers confirmed the adaptation of sustainable investing by their firms. This figure is up 10% from 2016 levels. In fact, the sustainable funds’ ETF gamut in 2018 gained more than $2 billion in net flows. Moreover, between 2016 and 2018, around 52 ESG ETFs were launched in the United States.

ETF Competition

The newly launched funds face tough competition owing to their focus on companies with good ESG ratings. Below we discuss a few ETFs that seek to provide exposure to ESG investing:

iShares ESG MSCI USA Leaders ETF SUSL 

The underlying MSCI USA Extended ESG Leaders Index comprises U.S. large and mid-capitalization stocks of companies with high ESG performance relative to their sector peers. The fund has 312 holdings with an AUM of $1.90 billion. The fund charges 10 bps in fees.

Xtrackers MSCI USA ESG Leaders Equity ETF USSG      

The fund tracks the investment results that correspond generally to the performance of the MSCI USA ESG Leaders Index. Notably, the MSCI USA ESG Leaders Index is comprised of large and mid-cap companies in the U.S. market and provides exposure to companies with superior ESG performance in comparison to their sector peers. The fund has 314 holdings with an AUM of $1.60 billion. The fund charges 10 bps in fees (read: 6 Most Successful ETF Launches YTD).

iShares MSCI KLD 400 Social ETF DSI

The underlying MSCI KLD 400 Social Index is a free float-adjusted market capitalization index designed to measure the equity performance of U.S. companies that have positive ESG characteristics. The fund has 403 holdings with an AUM of $1.80 billion. The fund charges 25 bps in fees

iShares ESG MSCI EAFE ETF ESGD

The underlying MSCI EAFE Extended ESG Focus Index comprises large and mid-capitalization developed market equities, excluding the U.S. and Canada that have positive ESG characteristics. The fund has 460 holdings with an AUM of $1.44 billion. It charges 20 bps in fees.

iShares ESG MSCI USA ETF ESGU

The fund seeks similar risk and return to the MSCI USA Extended ESG Focus Index while achieving a more sustainable outcome. The fund provides exposure to higher rated ESG companies while accessing large and mid-cap U.S. stocks. The fund has 321 holdings with an AUM of $1.43 billion. It charges 15 bps in fees (read: 6 ESG ETFs Close to or Above the $1B Asset Mark).

iShares MSCI USA ESG Select ETF SUSA

The underlying MSCI USA Extended ESG Select Index comprises U.S. companies that have positive ESG characteristics. The fund has 118 holdings with an AUM of $1.18 billion. It charges 25 bps in fees.

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iShares ESG MSCI EAFE ETF (ESGD): ETF Research Reports
 
iShares MSCI KLD 400 Social ETF (DSI): ETF Research Reports
 
Xtrackers MSCI USA ESG Leaders Equity ETF (USSG): ETF Research Reports
 
iShares ESG MSCI USA Leaders ETF (SUSL): ETF Research Reports
 
iShares ESG MSCI USA ETF (ESGU): ETF Research Reports
 
iShares MSCI USA ESG Select ETF (SUSA): ETF Research Reports
 
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