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Inside New Dividend and Large-Cap Growth ESG ETFs

The ETF industry has been expanding fast lately, resorting to a smarter approach and widening into new concepts. Amid the whole bunch of newer themes, socially relevant funds are in vogue (read: Thematic ETFs: Smarter Than Regular Smart Beta ETFs?).

Companies that focus heavily on environmental, social and governance (ESG) practices are being craved by investors, if we go by BlackRock. No wonder, issuers have flocked to this emerging concept and are rolling out new products in full swing.

As per the latest data by Morningstar, 70% of all investors are interested in socially responsible investing, while more than 80% of millennials seek to go socially responsible on their investment decisions.

Renowned issuers like iShares, Barclays and ALPS have already made their presence felt in this category (read: Oppenheimer to Add Revenue-Weighted Feature to ESG ETFs).

Legg Mason ETF Investment Trust has also followed the same trend and launched two new products, namely ClearBrige Dividend Strategy ESG ETF YLDE and ClearBridge Large Cap Growth ESG ETF LRGE. Both funds charge 59 bps in fees. Let’s delve a little deeper.

YLDE in Focus

It is an actively managed fund and looks to invest in dividend paying stocks with positive ESG attributes. Large-cap companies with compelling dividends that have been increasing are considered for the fund. State Str Instl Invt Tr (8.52%), Time Warner (2.92%) and Home Depot (2.87%) are the top three holdings of the fund.

Attaching the dividend-weighted factor with a high ESG score seems to be a great endeavor. This is especially true as dividend focus gives more exposure to quality or value. Dividends that have been rising consistently can offer investors protection against any downside risk.

Competition: While there is no exact competition for this product, NuShares ESG Large-Cap Value ETF NULV may pose some threats.

LRGE in Focus

The fund follows an actively managed strategy that looks to “achieve long-term capital appreciation through investments in large-capitalization companies with positive ESG attributes that have the potential for high future earnings growth” (read: Guide to Socially Responsible ETFs).

Companies with a market cap similar to those in the Russell 1000 Growth Index are assessed for sustainability and growth as well as competitive advantage, as per the issuer. No stock accounts for more than 4.93% of the basket. Amazon, Microsoft and United Health Group are the top three holdings.

Large-cap growth ETFs with impressive ESG attributes can be intriguing to investors. Large-cap stocks have significant foreign country exposure and several foreign economies are looking up lately (read: 7 Large-Cap Growth ETFs That Are Sizzling).

Competition: There are very few ETFs that combine ESG characteristics with large-cap growth attributes.NuShares ESG Large-Cap Growth ETFNULG can give competition to this newbie thanks to its exactly same investment objective.

Investors should also note that the ESG investing theme is getting crowded by the day, making the task of wooing investors uphill for YLDE and LRGE. Some of the top-grossing ESG ETFs are iShares MSCI KLD 400 Social ETF DSI, SPDR SSGA Gender Diversity Index ETF SHE , iShares MSCI ACWI Low Carbon Target CRBN and SPDR S&P 500 Fossil Fuel Free ETF SPYX.

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SPDR-SP5 FF RSV (SPYX): ETF Research Reports
ISHARS-KLD 400 (DSI): ETF Research Reports
ISHARS-M L CRBN (CRBN): ETF Research Reports
SPDR-SSGA GD (SHE): ETF Research Reports
NUS-ESG LC VALU (NULV): ETF Research Reports
CLRBG-LCG ESG (LRGE): ETF Research Reports
CLRBG-DV ST ESG (YLDE): ETF Research Reports
NUS-ESG LC GRW (NULG): ETF Research Reports
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