Institutional Money Comes To ESG ETFs

March 13, 2019

Over the past two weeks, more than $1 billion in institutional money has poured into socially responsible ETFs, leading many to wonder whether environmental, social and governance (ESG) investing has finally "hit it big."

Last week, the Xtrackers MSCI U.S.A. ESG Leaders Equity ETF (USSG) had the biggest launch of any ETF in the past 15 years, debuting with an infusion of $843 million from the Finnish insurer, Ilmarinen (read: "ESG ETF's Launch Biggest In 15 Years").

Earlier this month, Vanguard's two ESG ETFs also saw significant inflows. On March 1, the Vanguard ESG U.S. Stock ETF (ESGV) took in $100 million, while on March 4, the Vanguard ESG International Stock ETF (VSGX) took in $104 million.

In the grand scheme of things, $1 billion in inflows—even in a single month—isn't that much in the ETF industry, where total assets invested now top $3.7 trillion.

However, as of the end of last year, ESG ETFs had only $8 billion in total assets under management (AUM)—meaning that $1 billion represents a heck of a hefty infusion of new cash (read: "The Year In ESG ETFs").

Institutional Interest In LRGE, ESGD

Year-to-date, the five ESG ETFs with the largest net inflows are:

 

5 ESG ETFs With Biggest YTD Flows  
Ticker Fund Issuer AUM ($M) Expense Ratio Fund Flows ($M) MSCI ESG Score
USSG Xtrackers MSCI USA ESG Leaders Equity ETF Deutsche Bank 845.95 0.10% 845.95 N/A
VSGX Vanguard ESG International Stock ETF Vanguard 223.28 0.15% 153.79 6.35
ESGV Vanguard ESG U.S. Stock ETF Vanguard 266.07 0.12% 148.26 5.48
ESGD iShares ESG MSCI EAFE ETF BlackRock 651.57 0.20% 118.98 8.05
LRGE ClearBridge Large Cap Growth ESG ETF Legg Mason 116.27 0.59% 105.26 6.11

Source: ETF.com; data as of 3/8/19

 

In addition to USSG and the Vanguard funds, two other funds have notched significant block trades over the past few months, likely from institutional sources.

The ClearBridge Large Cap Growth ESG ETF (LRGE), part of Legg Mason's suite of funds, took in roughly $105 million over the course of a week in mid-February. After a year and a half of anemic trading, LRGE saw several consecutive days of $27 million to $30 million in net flows:

 

Source: ETF.com; data range: 2/8/18 to 3/8/19

 

The iShares ESG MSCI EAFE ETF (ESGD) has exhibited an even more intriguing pattern of flows. Since February 2018, iShares ETFs have seen a regular influx of $20 million to $30 million in new cash on the order of every two or three weeks:

 

Source: ETF.com; data range: 3/8/18 to 3/8/19

 

These steady inflows have made ESGD now the fourth-largest socially responsible fund, at $652 million in AUM. Before they began, ESGD only had $144 million in assets; it didn't even rank among the top 10 largest ESG ETFs (read: "Where Are The ESG Flows?").

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