ETF Watch: 2 Very Different Filings From iShares

Recent filings from iShares indicate the firm has filed for two very different funds. The iShares MSCI USA ESG Optimized ETF will implement a slightly different methodology from the emerging markets and EAFE funds the firm launched earlier this year, while the iShares 5-10 Year USD Bond ETF can invest in USD-denominated debt issued almost anywhere in the world.

The ESG fund will track the MSCI USA ESG Focus Index that looks to perform similarly to the broad MSCI USA Index; however, the index overweights companies with high environmental, social and governance (ESG) scores, while excluding companies in the tobacco and weapons industries, as well as companies embroiled in business-related controversies. The index follows an optimization process to provide increased exposure to the top-ranked companies in terms of ESG standards. ESG issues are identified on an industry basis, with scores based on how much companies are exposed to the respective issues and how they deal with the risks associated with those issues.

The fund looks like it will be similar to the $413 million iShares MSCI USA ESG Select ETF (KLD), but holdings in KLD are weighted solely based on their ESG scores, without the optimization element to its methodology.

Meanwhile, the fixed-income ETF will track the Barclays U.S. Universal 5-10 Year Index, which covers debt denominated in U.S. dollars that can be issued in the U.S. and in foreign developed and emerging markets. The bonds in the index must be taxable bonds—so no muni bonds—and have remaining maturities between five and 10 years. Components of the index can be investment-grade or high-yield bonds, according to the prospectus.

The fund will be able to invest in a wide range of securities, from sovereign and quasi-sovereign issues to supranational and corporate debt. The prospectus also notes that a significant portion of the index will cover mortgage-backed securities.

The filings did not include tickers, expense ratios or listing exchanges.

Contact Heather Bell at [email protected].