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Is iShares ESG Aware MSCI USA ETF (ESGU) a Strong ETF Right Now?

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Designed to provide broad exposure to the Style Box - All Cap Growth category of the market, the iShares ESG Aware MSCI USA ETF (ESGU - Free Report) is a smart beta exchange traded fund launched on 12/01/2016.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

The fund is sponsored by Blackrock. It has amassed assets over $14.27 billion, making it the largest ETF in the Style Box - All Cap Growth. Before fees and expenses, ESGU seeks to match the performance of the MSCI USA ESG Focus Index.

The MSCI USA Extended ESG Focus Index comprises of U.S. companies that have positive environmental, social and governance characteristics while exhibiting risk and return characteristics similar to those of the parent index.

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.

Annual operating expenses for this ETF are 0.15%, making it one of the least expensive products in the space.

It's 12-month trailing dividend yield comes in at 1.65%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

ESGU's heaviest allocation is in the Information Technology sector, which is about 27.40% of the portfolio. Its Healthcare and Financials round out the top three.

Taking into account individual holdings, Apple Inc (AAPL - Free Report) accounts for about 5.85% of the fund's total assets, followed by Microsoft Corp (MSFT - Free Report) and Amazon Com Inc (AMZN - Free Report) .

The top 10 holdings account for about 21.26% of total assets under management.

Performance and Risk

So far this year, ESGU has gained about 7.28%, and is down about -9.28% in the last one year (as of 04/03/2023). During this past 52-week period, the fund has traded between $79.22 and $102.58.

The fund has a beta of 1.02 and standard deviation of 20.43% for the trailing three-year period. With about 313 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares ESG Aware MSCI USA ETF is a reasonable option for investors seeking to outperform the Style Box - All Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard ESG U.S. Stock ETF (ESGV - Free Report) tracks FTSE US ALL CAP CHOICE INDEX and the iShares ESG Aware MSCI EAFE ETF (ESGD - Free Report) tracks MSCI EAFE ESG Focus Index. Vanguard ESG U.S. Stock ETF has $6.10 billion in assets, iShares ESG Aware MSCI EAFE ETF has $7.21 billion. ESGV has an expense ratio of 0.09% and ESGD charges 0.20%.

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 Growth.

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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