IShares MSCI KLD 400 Social ETF DSI selects stocks based on their environmental, social, and governance attributes, but it confers the key benefits of a broad market-cap-weighted index strategy.

The MSCI KLD 400 Social Index, which this fund fully replicates, weaves a market-cap-weighted 400-stock portfolio that targets the companies from each sector with the best ESG traits. MSCI grades firms' ESG merit based on their exposure to relevant industry risks and opportunities, fitness to manage the risks and seize the opportunities, involvement in controversies, business involvement, and corporate governance.

Market-cap-weighting is a sensible approach that works well in the large-blend market. Large- and mid-cap stocks constitute most of this portfolio, and they tend to be priced accurately because they attract vast investor attention. By using stocks' prices to determine portfolio weights, the fund channels the market’s consensus opinion on each firm's relative value. Market-cap-weighting also reduces turnover and the consequent transaction costs, with help from very lenient index buffers.

It's unclear whether ESG scores translate into market-beating returns, but these firms do tend to boast sound profits and healthy balance sheets. That bends the fund toward the quality factor, which has a long, robust track record of market-beating performance.

This fund favors the growth side of the large-blend Morningstar Category because companies with strong ESG traits normally grow quickly and command a premium. It's also somewhat concentrated in the fast-growing technology sector. Its 34% portfolio weight in these stocks was higher than most of its peers' as of November 2023, while it underweights cheaper energy and utilities firms. The fund’s growth orientation can affect category-relative performance at times, but it doesn't overshadow the fund's cost advantage or the benefits of market-cap-weighting.

Analyst Rating

An ESG fund that resembles the broad market.

Analyst

Ryan Jackson

Microsoft

NVIDIA

Alphabet

Tesla

Visa

Mastercard

Procter & Gamble

Home Depot

Merck

This fund selects stocks based on their ESG traits. It offers the cost efficiency, diversification, and low turnover found in traditional market-cap-weighted index strategies. It merits an Above Average Process Pillar rating.

Above Average

Process

BlackRock’s industry-leading technology, global footprint, and extensive supporting cast earn an Above Average People Pillar rating. 

The team employs BlackRock's Aladdin platform to fulfill much of its portfolio management tasks, and global trading desks allow traders to conduct foreign transactions in a cost-effective way. 

The U.S.-based iShares index equity team has endured some internal turnover at the top over the past few years. But index-tracking performance should remain tight, thanks to heavily automated processes, a large team of seasoned professionals, and several long-tenured managers who remain at the helm. Amy Whitelaw left the team in February 2023 for another role within the organization. Paul Whitehead replaced Alan Mason as a manager in January 2022, when Mason left to focus on the firm's customized institutional indexing capabilities. The broader index equity group, co-headed by Jennifer Hsui and Whitehead, will continue to oversee iShares equity ETFs. 

All managers interact with a wider team of traders and managers around the globe to execute the funds' day-to-day operations. The larger number of managers also limits the impact of personnel turnover when it does occur.

People

BlackRock offers compelling options across asset classes and vehicles. It earns an Above Average rating for Parent. 
The firm’s approximately USD 8 trillion in assets under management, as of Sept. 30, 2022, gives it unparalleled scale and influence. It is a market-leading index fund provider globally, and its iShares exchange-traded fund franchise offers a low-cost lineup of core funds that investors can use to build a well-diversified portfolio for dirt cheap. The firm can be more adventurous in its ETF launches than some peers, so not everything it launches is appropriate for the masses. As a result, it is likely to have more ETF closures than peers that stick to the basic building blocks.  
The firm’s active fixed-income and multi-asset efforts also stand out as some of the best in the industry. Those benefit from BlackRock’s commitment to building a first-class risk management system via its Aladdin analytics software. The software is also available for sale to other firms and has proved to be a popular option for competitors, a testament to its usefulness. 
More recently, the firm has shifted its focus to ESG offerings and incorporating ESG across its investment lineup, leading to a political backlash in the United States.
BlackRock isn’t the best at everything it tries to do, but retail investors, financial advisors, and large institutions could all build robust portfolios using BlackRock’s products.

Parent

iShares MSCI KLD 400 Social ETF

DSI tracks a market-cap-weighted index of 400 US companies deemed to have positive environmental, social and governance characteristics by MSCI.

iShares MSCI KLD 400 Social ETF is a passively managed ETF that tracks the MSCI KLD 400 Social Index, focusing on US companies with positive ESG characteristics. DSI's top holdings are similar to other large-cap ETFs, lacking diversification benefits. DSI's sector composition closely mirrors the S&P 500, reducing the need to switch unless ESG is a core part of the portfolio.

DSI: Nothing Compelling Here

iShares MSCI KLD 400 Social ETF invests with environmental, social, and corporate governance principles, or ESG. Valuation and growth metrics for the DSI ETF are underwhelming, but quality is above par. Past performance is similar to the S&P 500. Investors including ethical principles in their strategy may buy DSI without sacrificing performance, but keep in mind it is very heavy in technology.

For DSI, Ethics Is Not A Drag

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