iShares’ latest offering is an ESG take on the ETF with the largest outflows from any U.S.-listed ETF so far this year.
The iShares ESG Advanced Investment Grade Corporate Bond ETF (ELQD) debuted on the NYSE Arca on Wednesday with a 0.18% expense ratio.
ELQD follows the same index as the iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD), but with ESG screens to exclude companies that produce firearms, alcohol, tobacco, genetically modified organisms, palm oil and other controversial products.
Companies that also fall short of a BB rating on MSCI’s ESG ratings are also eliminated. Approximately 18% of companies rated by MSCI are below that threshold.
ELQD’s debut comes at a particularly difficult time for its older sibling. LQD gained more than $17 billion from the beginning of March 2020 to the end of the year, as the Federal Reserve’s $120 billion per month bond-buying program propped up the corporate credit sector.
But the fund’s fortunes have reversed, as dual threats of high inflation and the Fed’s announced taper of that bond-buying program calmed the sector’s animal spirits.
As of Monday, LQD has lost $14.86 billion in assets year-to-date, the most from any ETF on the U.S. exchanges, according to Bloomberg data. That figure amounts to just shy of 38% of its assets under management.
Chart courtesy of FactSet
A BlackRock spokesperson said ELQD’s launch is part of the firm’s long-term plans to offer sustainable versions of core ETF offerings as laid out in CEO Larry Fink’s 2020 letter to clients.