ETF Investors Embrace ESG 'Lifestyle'

July 17, 2019

Though socially responsible funds as a market segment remain small compared to the rest of the $4 trillion ETF market, their pace of growth is accelerating in 2019, thanks to a few high-profile launches and billion dollar bets.

Year to date, investors have poured $4.7 billion into socially responsible ETFs, also known as environmental, social and governance (ESG) ETFs, almost twice the total money that went into these funds in 2018. Last year, investors added $2.6 billion to the space.

More than half of this year's flows went into two specific funds, the iShares ESG MSCI USA Leaders ETF (SUSL) and the Xtrackers MSCI U.S.A. ESG Leaders Equity ETF (USSG), both of which were seeded by the same institutional investor, Ilmarinen. Year to date, SUSL and USSG have taken in $1.4 billion and $1.2 billion, respectively (read: "Institutional Money Comes To ESG ETFs").

Other big draws were the Vanguard ESG ETFs and several iShares ESG funds (see below) designed to replace or supplement key core asset allocations.

The ETFs with the highest 2019 flows are listed below:


ESG ETFs With Highest Net Inflows In 2019
Ticker Fund Expense Ratio AUM ($M) YTD Returns 1-Yr Returns YTD Flows ($M) 1-Yr Flows ($M) MSCI ESG Rating
SUSL  iShares ESG MSCI USA Leaders ETF 0.10% 1,430 -- -- 1367 1367 --
USSG  Xtrackers MSCI U.S.A. ESG Leaders Equity ETF 0.10% 1,210 -- -- 1126 1126 --
ESGV  Vanguard ESG U.S. Stock ETF 0.12% 534 21.61% -- 385 497 BBB
VSGX  Vanguard ESG International Stock ETF 0.15% 383 13.26% -- 307 373 A
ESGD  iShares ESG MSCI EAFE ETF 0.20% 837 13.83% -0.52% 291 527 AA
ESGE  iShares ESG MSCI EM ETF 0.25% 705 11.09% 0.84% 248 375 A
SUSA  iShares MSCI U.S.A. ESG Select ETF 0.25% 1,110 20.05% 8.71% 172 313 AA
LRGE  ClearBridge Large Cap Growth ESG ETF 0.60% 156 23.71% 12.44% 133 139 A
ESGU  iShares ESG MSCI U.S.A. ETF 0.15% 258 20.11% 9.41% 105 155 A
CATH  Global X S&P 500 Catholic Values ETF 0.29% 267 20.28% 8.05% 86 91 BBB

Source:; data as of July 10, 2019


Low-Cost Core Products Attract Most Flows

The common theme between the top flows gatherers is that they are all broad-based, core ETFs designed to supplement or replace vanilla exposure in an asset allocation plan.

For example, the iShares ESG MSCI EAFE ETF (ESGD) and the iShares ESG MSCI EM ETF (ESGE) both track virtually the same exposures as the iShares MSCI EAFE ETF (EFA) and the iShares MSCI Emerging Markets Index (EEM), just with several exclusionary screens to exclude securities rated to be the worst ESG offenders.

Notably, the top-drawing ETFs are almost all low-cost. With one exception, they all have expense ratios below 0.30%; the five ETFs with the biggest year-to-date flows are priced at or below 0.20%.

The fact that low-cost core products reign supreme in the ESG space runs counter to many assumptions around the space; namely, that these ETFs are dominated by narrow, thematic funds designed to capitalize on the next "green" fad.

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