Is iShares Paris-Aligned Climate MSCI USA ETF (PABU) a Strong ETF Right Now?
Launched on 04/08/2022, the iShares Paris-Aligned Climate MSCI USA ETF (PABU) is a smart beta exchange traded fund offering broad exposure to the Style Box - All Cap Blend category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is managed by Blackrock, and has been able to amass over $1.48 billion, which makes it one of the larger ETFs in the Style Box - All Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the MSCI USA CLMT PARIS ALGN BNC EXT SLCT ID.
The MSCI USA Climate Paris Aligned Benchmark Extended Select Index composed of U.S. large & mid-capitalization stocks designed to be compatible with the objectives of the Paris Agreement by following a decarbonization trajectory, reducing exposure to climate-related transition & physical risks & increasing exposure to companies favourably positioned for the transition to a low-carbon economy.
Cost & Other Expenses
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Operating expenses on an annual basis are 0.10% for this ETF, which makes it one of the least expensive products in the space.
The fund has a 12-month trailing dividend yield of 1.06%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
For PABU, it has heaviest allocation in the Information Technology sector --about 32.50% of the portfolio --while Healthcare and Consumer Discretionary round out the top three.
Looking at individual holdings, Apple Inc (AAPL) accounts for about 9.06% of total assets, followed by Microsoft Corp (MSFT) and Nvidia Corp (NVDA).
Its top 10 holdings account for approximately 30.02% of PABU's total assets under management.
Performance and Risk
The ETF has added roughly 19.44% and is up about 10.62% so far this year and in the past one year (as of 08/29/2023), respectively. PABU has traded between $38.63 and $50.65 during this last 52-week period.
The fund has a beta of 1.01 and standard deviation of 22.14% for the trailing three-year period. With about 276 holdings, it effectively diversifies company-specific risk.
Alternatives
IShares Paris-Aligned Climate MSCI USA ETF is an excellent option for investors seeking to outperform the Style Box - All Cap Blend segment of the market. There are other ETFs in the space which investors could consider as well.
IShares ESG Aware MSCI EAFE ETF (ESGD) tracks MSCI EAFE ESG Focus Index and the iShares ESG Aware MSCI USA ETF (ESGU) tracks MSCI USA ESG Focus Index. IShares ESG Aware MSCI EAFE ETF has $7.21 billion in assets, iShares ESG Aware MSCI USA ETF has $12.61 billion. ESGD has an expense ratio of 0.20% and ESGU charges 0.15%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - All Cap Blend.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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iShares Paris-Aligned Climate MSCI USA ETF (PABU): ETF Research Reports
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
iShares ESG Aware MSCI EAFE ETF (ESGD): ETF Research Reports
iShares ESG Aware MSCI USA ETF (ESGU): ETF Research Reports
