Market Overview

Another ESG ETF Enters The Fold

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Another ESG ETF Enters The Fold

While some exchange traded funds adhering to environmental, social and governance (ESG) investing principles struggle to gain traction with investors, issuing continue bringing these funds to market.

The latest addition to the ESG fray in the U.S. is the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE:USSG).

What Happened

The new Xtrackers MSCI USA ESG Leaders Equity ETF joins an expanding lineup of ESG ETFs offered by DWS, the ETF and wealth management arm of Deutsche Bank AG (NYSE: DB). USSG was developed in partnership with Ilmarinen, Finland's largest pension insurance company.

“We welcome new ETF products that incorporate ESG factors in a pragmatic and efficient way,” said Anna Hyrskem, Ilmarinen's head of responsible investments, in a statement. “Taking material and relevant ESG data into account helps us achieve our goal of investing pension assets so that the return also secures the pensions of the future generations.”

Why It's Important

The new ETF follows the MSCI USA ESG Leaders Index. That index is a cap-weighted index “that provides exposure to companies with high Environmental, Social and Governance (ESG) performance relative to their sector peers,” according to MSCI.

The index is home to domestic large- and mid-cap stocks and features 339 stocks compared to 620 in the MSCI USA Index. The median weight assigned to stocks in the MSCI USA Leaders Index is 0.13 percent and the benchmark's top 10 holdings combine for nearly 26 percent of the index's weight.

Those stocks include Microsoft Corporation (NASDAQ: MSFT), Johnson & Johnson (NYSE: JNJ) and Visa Inc. (NYSE: V).

As is the case with many ESG strategies, the Xtrackers MSCI USA ESG Leaders Equity ETF features significant exposure to the technology sector. That sector is 24.57 percent of the new ETF's underlying index, well above the 13.58 percent allocated to healthcare, the benchmark's second-largest sector weight.

What's Next

Industry observers are expecting millennials to fuel ESG ETF growth in the coming years, but USSG has at least one way of luring investors right now: a low fee. With an annual fee of just 0.10 percent, or $10 on a $10,000 investment, USSG is among the least expensive domestic ESG ETFs.

USSG is the third ESG ETF in the DWS lineup.

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