ESG ETF's Launch Biggest In 15 Years

DWS Group's new socially responsible ETF, the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG), has just seen the biggest launch of any ETF in the past 15 years.

USSG, which began trading Thursday, already has $846 million in assets under management, making it the third-largest environmental, social and governance (ESG) ETF literally overnight (read: "Socially Responsible ETF Debuts At Low Cost").

Notably, with an expense ratio of 0.10%, USSG is also now the cheapest U.S. equity ESG ETF, undercutting the previous leader in price, the Vanguard ESG U.S. Stock ETF (ESGV), by 0.02%. The fund is also tied for cheapest among all ESG ETFs, matched only by the iShares ESG U.S. Aggregate Bond ETF (EAGG).

Finnish Insurer Involved

Though socially responsible funds have steadily gained assets over the past few years, they remain a small pocket of the ETF landscape. Combined, ESG ETFs hold just $8.4 billion in assets under management, or 0.2% of the total assets invested across all ETFs.

Yet the tides may be shifting. USSG's blockbuster launch suggests that ESG ETF investing may be picking up in popularity, especially among institutions, which often have ESG-related investment mandates to satisfy.

USSG's massive inflows likely had some connection to Finnish mutual pension insurance company Ilmarinen, who collaborated with DWS Group in USSG's development in order to use the fund in their own strategies.

The insurer already uses the MSCI U.S. ESG Leaders index, USSG's index, as a benchmark. MSCI's ESG Leaders methodology scores stocks according to their ESG credentials, then picks high-scoring stocks until the index represents half the market capitalization of the parent index (in this case, the MSCI USA Index).

That results in a benchmark of only top-tier ESG companies, which is then adjusted by sector (and country) weights to reflect those in the parent index (watch: "Inside ETFs: Evolving ESG Opportunity Set").

Full Suite Of Equity ETFs

DWS already has three other equity funds in its ESG suite, each charging the lowest or nearly the lowest fees in their respective categories (read: "The Cheapest ESG ETF Portfolio").

These include:

• Xtrackers MSCI ACWI ex U.S.A. ESG Leaders Equity ETF (ACSG), 0.16%
• Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG), 0.14%
• Xtrackers MSCI Emerging Markets ESG Leaders Equity ETF (EMSG), 0.20%

However, none of these funds has yet attracted the assets with which USSG debuted. ACSG and ESMG both have assets under management of $8 million, while EASG has assets of $7 million.

Contact Lara Crigger at [email protected]