ETF Watch: Nuveen Launching Socially Responsible Funds

December 14, 2016

Today Nuveen is rolling out five ETFs under its NuShares brand, all of which will rely on environmental, social and governance criteria for their construction. The funds track indexes co-developed by Nuveen and MSCI.

The funds are listed on the Bats exchange. Bats Global Markets is the owner of ETF.com.

The list of new ETFs includes the following, along with their expense ratios:

  • NuShares ESG Large-Cap Growth ETF (NULG), 0.35%                        
  • NuShares ESG Large-Cap Value ETF (NULV), 0.35%                             
  • NuShares ESG Mid-Cap Growth ETF (NUMG), 0.40%                         
  • NuShares ESG Mid-Cap Value ETF (NUMV), 0.40%                             
  • NuShares ESG Small-Cap ETF (NUSC), 0.40%

Nuveen is a subsidiary of TIAA CREF, and ESG strategies have long been a part of that firm’s DNA, according to Nuveen Managing Director and Head of ETFs Martin Kremenstein.

“This is something that is really core to the very heart of what TIAA is all about,” he said, noting that this would not be the last ESG ETF launched by Nuveen.

The funds’ underlying indexes are based on derivations of the MSCI USA Index and use MSCI ESG Research data to assign scores to companies. Companies heavily involved in typically forbidden business lines by most ESG standards such as alcohol, tobacco, weapons, nuclear power and gambling are excluded from the index, while the remainder are evaluated in relation to their industry peers according to various ESG criteria that are often based on issues like climate change, public safety and business ethics, according to the prospectus.

The eligible firms are then ranked by their ESG scores within their industry group, with the highest-scoring selected for inclusion in the index. Sector weights are adjusted to reflect those of the parent index, the prospectus said.  

Products For The Portfolio Core
Kremenstein noted that the launch of the five funds makes sense because most investors are still using style and size in their domestic allocations.

“The one driving force behind this is an attempt to make ESG more investable. A lot of ESG products that are out there are thematic and focus on a single sector, whether it’s water or clean energy—they’re very tactical. Or they are one-off funds, and the question is, how does that fit in a portfolio? Where does it leave me underweight? Where does it leave me overweight?” he added.

“These [ETFs] are designed for investors who want to adopt a consistent framework across size and style within the U.S. that they can apply to their U.S. domestic equities ­­­­­­allocation,” Kremenstein said, pointing out that risk profiles of the products are intended to be similar to those of the parent indexes so that investors can use them in the core of their portfolios without worrying about unintended concentrations or underweights.

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