A sound investment process and strong management team underpin Xtrackers Net Zero Pwy Par Alg US Eq ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's sensible investment philosophy merits a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in liquidity exposure and volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Apple

NVIDIA

Microsoft

Alphabet

Eli Lilly

Broadcom

JPMorgan Chase & Co

UnitedHealth Group

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. Xtrackers Net Zero Pwy Par Alg US Eq ETF earns a High Process Pillar rating. The most important driver of the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's five-year risk-adjusted success ratio of 59% also strengthens the process. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their compelling success ratio suggests that the firm does well for investors and that this fund may benefit from that. The parent firm's superior risk-adjusted performance, as shown by its average 10-year Morningstar Rating of 3.2 stars, influences the rating as well.

The investment strategy as stated in the fund's prospectus is:  The investment seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive ISS ESG United States Net Zero Pathway Enhanced Index.  The index is comprised of large and mid-capitalization companies in the United States that meet certain ESG criteria. The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, and in equity securities of issuers incorporated in the United States and as considered by the Advisor to be aligned with the Paris Agreement and consistent with the Net Zero Investment Framework. It is non-diversified. 

 The portfolio is overweight in technology and healthcare relative to the category average by 9.1 and 4.3 percentage points, respectively. The sectors with low exposure compared to category peers are industrials and consumer cyclical, underweight the average by 5.7 and 4.1 percentage points of assets, respectively. The portfolio is positioned across 357 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 32.4% of the strategy's assets were concentrated in the top 10 fund holdings, compared to the category average's 49.5%. And finally, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

High

Process

Xtrackers Net Zero Pwy Par Alg US Eq ETF's strong team drives the strategy's Above Average People Pillar rating. There are four managers listed on the fund: Patrick Dwyer, Shlomo Bassous, Bryan Richards, Ashif Shaikh. The team is well equipped, with an average of 17 years of portfolio management experience. Together, they manage a total of 29 strategies, with a Silver asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Above Average

People

In the past two years, DWS has been under heavy scrutiny from the SEC and German authorities owing to greenwashing allegations that were initially raised in August 2021 by the firm’s former chief sustainability officer Desiree Fixler. The SEC announced on Sept. 25, 2023, that it has fined DWS USD 19 million for failing to implement procedures to ensure that all investment staff members were following its environmental, social, and governance policies. This relates to funds where ESG factors were analyzed alongside other financially material factors, but where managers retained discretion over ESG outcomes. In addition, the firm was ordered to pay USD 6 million for deficiencies in its anti-money-laundering processes that were uncovered in a separate investigation. The investigation by the German authorities into the firm's ESG disclosures is still ongoing.  
The SEC findings underline that despite strong senior management commitment, it takes a considerable amount of time and resources to embed sustainability across all levels of an organization for firms without a long-standing sustainability heritage. Overconfidence and failure to deal with internal criticism adequately appear to have contributed to DWS' misleading statements on ESG matters. While it's difficult to quantify the financial damage to clients and no misstatements were detected in financial disclosures or prospectuses, we believe the firm’s shortcomings have the potential to adversely affect investor outcomes. Hence, we welcome DWS' efforts to strengthen governance around ESG integration and communicate more conservatively about its ESG capabilities.
Questionable and unsteady leadership has contributed to the DWS' woes. Previous CEO Asoka Woehrmann, who had spearheaded the firm's ESG push, stepped down in June 2022 as a result of the ESG investigations. His credibility had already been harmed following his use of personal email for business purposes and a large payment made to him by a client when he was head of Deutsche Bank's private-client business before being appointed as DWS' CEO in 2018. His successor Stefan Hoops is the firm's sixth CEO in the past 10 years, highlighting the instability in the firm's top leadership. This appointment also shows the continued influence of its parent company, even after the partial IPO in 2018. Hoops has spent most of his career at Deutsche Bank but has no asset-management background.
Despite all these negative headlines and shaky leadership, DWS has managed to remain quite stable in its investment ranks. The firm has also made strides to gain greater independence. For example, since 2020, bonuses have been linked to the firm's own performance rather than to that of the bank as a whole, which supports alignment and talent retention. Variable remuneration takes into account performance of up to five years.
DWS' vast fund lineup covers all asset classes, including passive strategies, which are offered under the Xtrackers brand. Many offerings don't distinguish themselves, but there are genuine areas of strength among active strategies, and fees are competitive across many funds. While the product development process has been streamlined, and although the firm has launched new strategies at a slower pace, lineup turnover remains a concern as a culture of asset-gathering prevails. New offerings are partly related to an expansion of ESG capabilities, but the firm is also building out its thematic equity, multi-asset, alternatives, and exchange-traded fund range. 
At this stage, we continue to believe that DWS' strengths justify a Parent Pillar rating of Average despite several weaknesses in its stewardship practices, but we will closely monitor the company for further disruption.

Average

Parent

Xtrackers Net Zero Pathway Paris Aligned US Equity ETF

USNZ tracks a tier-weighted index of large- and mid-cap US stocks selected and weighted based on ESG criteria that is aligned with the objectives of the Net Zero Investment Framework and the Paris Climate Agreement.

At the 2015 Paris Climate Accord, more than 190 countries agreed to make sure global warming stays “well below” 2 degrees Celsius and to “pursue efforts” to limit the temperature rise to 1.5 degrees Celsius. Now, seven years later, how is the world doing to maintain its these targets?

Use USNZ To Help Meet Paris Agreement Targets

As part of its goal towards net zero emissions by 2050, Microsoft is backing a startup company dedicated to providing an alternative energy source to diesel generators. Moxion Power is focused on building battery-powered, mobile generator technology.

Back Microsoft's Push Towards Net Zero Emissions Through USNZ

Xtrackers S&P 500 ESG ETF

Apple has shown signs of growth and stability not seen in many of its peers. The Cupertino, California-based tech giant on Thursday reported record revenue of $90.1 billion for the quarter ended September 30, and annual sales growth of 8%, beating analyst expectations.

Apple Showing Growth and Stability Over Peers

Despite the crowing against environmental, social, and governance investing from some opportunistic politicians, ESG investing is gaining in popularity among investors. A new study by PwC shows that nearly 9 in 10 institutional investors (88%) believe asset managers should be more proactive in developing new ESG investment products.

Environmental & Impact Investing Gaining Momentum

DWS announced today the launch of a new Xtrackers exchange traded fund. The Xtrackers Net Zero Pathway Paris Aligned U.S. Equity ETF (NYSE Arca: USNZ) provides large- and mid-cap U.S. equity exposure aligned with an internationally recognized framework and is designed to capture the move of the global economy to a net-zero emissions environment.

New Xtrackers ETF to Capture Global Economy's Move to Net Zero

NEW YORK--(BUSINESS WIRE)--DWS, one of the world's leading asset managers, announced today the launch of a new Xtrackers exchange-traded fund (ETF). It provides large and mid-cap U.S. equity exposure aligned with an internationally recognized framework and is designed to capture the move of the global economy to a net zero emissions environment. Xtrackers Net Zero Pathway Paris Aligned U.S. Equity ETF (NYSE Ticker: USNZ) listed today on the New York Stock Exchange and is designed to align with

News for Xtrackers Net Zero Pathway Paris Aligned US Equity ETF ETF (USNZ)