Market Overview

The iShares Gun-Free Small-Cap ETF Is Here

The iShares Gun-Free Small-Cap ETF Is Here

As promised, BlackRock Inc.'s (NYSE: BLK) iShares unit, the world's largest issuer of exchange-traded funds, launched a small-cap ETF excluding shares of gunmakers. The iShares MSCI USA Small-Cap ESG Optimized ETF (CBOE:ESML) debuted earlier this week.

The new fund is designed to provide exposure to small-cap stocks with favorable environmental, social and governance (ESG) traits. ESML tracks the MSCI USA Small Cap Extended ESG Focus Index, an ESG offshoot of the MSCI USA Small Cap Index. In addition to excluding gunmakers, the MSCI USA Small Cap Extended ESG Focus Index also excludes tobacco companies.

“The index is constructed by selecting constituents from MSCI USA Small Cap Index through an optimization process that aims to maximize exposure to ESG factors for a target tracking error budget set to 50bps under certain constraints,” according to MSCI.

ESML Details

The new ETF holds over 880 stocks, none of which command weights of over 0.54 percent. Over a third of the new fund's combined weight is allocated to technology and industrial stocks. The financial services and health care sectors combine for 28.6 percent of ESML's weight.

Following the Feb. 14 school shooting in Parkland, Florida that left 17 dead, BlackRock opened dialogue with investors as well as gunmakers and retailers. The asset manager said its actively managed funds liquidated positions in gun stocks following the Florida tragedy while assuring investors such stocks only accounted for small percentages of some of its passively managed ETFs.

BlackRock added that its existing ESG funds will apply more stringent screens to weed-out companies that generate more than $20 million or 5 percent of revenue from the sales of civilian firearms.

More Plans

When BlackRock revealed plans for ESML, it also said it's looking to launch an ESG-based corporate bond ETF. The iShares ESG US Aggregate Bond ETF is expected to launch later this year. That bond fund will exclude all gunmakers and retailers of civilian firearms.

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