In 2020, issuers finally got around to bolstering fixed income environmental, social, and governance (ESG) offerings.
The iShares ESG Advanced Total USD Bond Market ETF (EUSB), which debuted in June, is part of that group. It’s clear that EUSB, which tracks the Bloomberg Barclays MSCI US Universal Choice ESG Screened Index, has already gained quite the following, as highlighted its $141.44 million in assets under management in just six months on the market.
EUSB “seeks to track the investment results of an index composed of U.S. dollar-denominated bonds that are rated either investment-grade or high-yield from issuers with a favorable environmental, social and governance rating as identified by the index provider, while applying extensive screens for involvement in controversial activities,” according to iShares.
The EUSB ESG ETF Is Gaining a Following
As we wrap up a stellar 2020 for socially responsible investing, investments that track environmental, social, and governance principles may be looking at another big year.
EUSB is also gaining traction in the analyst community, an impressive feat for an ETF that’s so young.
“As measured by ESG characteristics, EUSB’s screens are effective. Its MSCI ESG Quality Score and Average Carbon Intensity are both materially higher than IUSB’s,” writes Morningstar’s Ben Johnson. “From a fundamental perspective, there are important differences between the two funds’ portfolios. Specifically, EUSB takes significantly less credit risk and incrementally less interest-rate risk. The fact that EUSB screens out firms with fossil fuel involvement partly explains this discrepancy as such issuers feature prominently in the high-yield space.”
The increased popularity of ESG-related ETFs has also reflected increased bets that the incoming President-elect Joe Biden could push for new legislation aimed at combating climate change, which will likely fuel demand for ESG funds in the years ahead.
In response to this higher demand for ESG investments, asset managers have also rolled out 31 ESG-related ETFs so far this year, almost double last year’s total and bringing the number of ESG-related ETFs in the United States to over 100, according to Elisabeth Kashner, director of ETF research at FactSet.
“All told, EUSB is a welcome addition to a slim menu of ESG intentional bond funds. The fund balances broad diversification with ESG incorporation and charges a low 0.12% fee,” according to Johnson.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.