IShares ESG Aware MSCI USA ETF ESGU integrates environmental, social, and governance considerations without sacrificing much of the benefits of a broadly diversified, low-turnover portfolio. These considerations earn the fund a Morningstar Analyst Rating of Silver.

The fund tracks the MSCI USA Extended ESG Focus Index, which strikes a balance between ESG integration and market representation. The fund’s benchmark applies basic exclusionary criteria to the MSCI USA Index to filter out companies involved in controversial business lines or severe controversies. From there, it employs an optimizer to lean toward companies with high ESG scores while targeting a 0.5% tracking error against the MSCI USA Index. From its inception through March 2023, the fund’s realized tracking error against its parent index hovered around 0.6%, not far from its target. 

The optimizer also applies other constraints relative to the parent index. Sector weights must remain within 5 percentage points of those in the MSCI USA Index, and individual positions can’t deviate by more than 2 percentage points. The resulting portfolio has a similar makeup to its starting universe and the Morningstar Category average. As of March 2023, the fund’s active share relative to its parent index was around 23%, which is fairly low compared with other ESG-intentional peers. Its top holdings are similar to those in the parent index. This should help keep the fund’s performance in line with its parent index and its average category peer. 

That said, its ESG exclusions are relatively light-touch and can include companies that might not have best-in-class ESG practices. This limits its appeal for ESG investors.

The fund charges a 0.15% expense ratio, which is competitive in its category. This low fee and the fund’s broad and diversified portfolio should preserve its performance advantage over the category average. Its ESG tilts have not been a major performance driver and will likely remain so.

Analyst Rating

A well-diversified broad-market fund with basic ESG screens.

Analyst

Lan Anh Tran

Apple

Microsoft

Amazon

NVIDIA

Alphabet

Tesla

UnitedHealth Group

Eli Lilly

The fund incorporates ESG criteria while retaining the benefits of a broadly diversified and low-turnover portfolio, earning a High Process rating.

High

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 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 that 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 Paul Whitehead, will continue to oversee iShares equity ETFs.

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

Above Average

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 USA ESG Optimized ETF

ESGU tracks an index composed of US companies that are selected and weighted for positive environmental, social and governance characteristics.

iShares ESG Aware MSCI USA ETF is not a very helpful fund in our opinion. The ESGU ETF closely matches the sectoral distributions and exposures of the iShares Core S&P 500 ETF, but levies higher expenses. There are economic concerns and reasons to worry about overall market valuations on top of the relative inefficiency of ESGU.

ESGU: No Value-Add, And ESG May Just Mean Executive Rents

Making its debut on 12/01/2016, smart beta exchange traded fund iShares ESG Aware MSCI USA ETF (ESGU) provides investors broad exposure to the Style Box - All Cap Growth category of the market.

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Sometimes the facts can get in the way of an ETF narrative. I think that's what is occurring with the recent outflows to the iShares ESG Aware MSCI USA ETF (ESGU).

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News for iShares MSCI USA ESG Optimized ETF ETF (ESGU)