New ESG ETF Has Blockbuster Debut

[Correction: A previous version of this article inaccurately explained the methodology of the MSCI USA ESG Leaders Index and the differences between that benchmark and the MSCI USA ESG Extended Leaders Index. The information has been corrected below.]

No, your eyes aren't playing tricks on you. History is indeed repeating itself: The iShares ESG MSCI USA Leaders ETF (SUSL), which launched last Thursday, saw a massive influx of new investment assets on Friday, to the tune of $847 million (read: "iShares Adds U.S. ESG ETF").

That echoes a similar debut in March, when the Xtrackers MSCI U.S.A. ESG Leaders Equity ETF (USSG) raised $843 million overnight after its launch. USSG now has $879 million in assets under management (read: "ESG ETF's Launch Biggest In 15 Years").

In both cases, the assets came from Ilmarinen, Finland's largest pension insurance company, which collaborated with both iShares and DWS Group on the development of their respective socially responsible ETFs.

However, SUSL's slightly larger influx of cash means its debut is now the largest ETF launch in the past 15 years, a record previously held by USSG.

Virtually Identical Under The Hood, But …

Substantively, SUSL and USSG are very similar funds. Both ETFs track companies that rank and score U.S. large and midcap companies along ESG factors. Both screen out any company involved in significant business controversies or in controversial industries, such as tobacco, alcohol, gambling, controversial weapons and so on. The two even share a parent index, the MSCI USA Index.

Under the hood, the main difference between the two appears to be one of exclusionary screens.

USSG's benchmark, the MSCI USA ESG Leaders Index, attempts marketlike representation, picking the highest-ESG-scoring stocks from the MSCI USA Index. It targets a coverage of 50% market capitalization within each sector of the parent index.

Meanwhile, SUSL's benchmark, the MSCI USA ESG Extended Leaders Index, is a variant of the MSCI USA ESG Leaders Index that has stronger exclusionary screens in place for civilian firearms companies. Any company earning $20 million in revenue or more from civilian firearm-related products, or any company earning 5% or more of their revenues from the distribution of civilian firearm-related products, is also excluded.

… Costs Still Differentiate

There is one more significant difference between the two ETFs: USSG costs 0.10% per year, while SUSL costs 0.15%.

That rock-bottom price, which made USSG the cheapest U.S. equity ESG ETF, hasn't lured much in the way of additional assets to USSG beyond Ilmarinen's initial investment, however.

Therefore, it remains to be seen whether BlackRock can attract more organic inflows into its rival product, by virtue of BlackRock being the world's largest ETF provider.

Contact Lara Crigger at [email protected]