An Interview With Schwab and Ariel Investments on Their ESG ETF, SAEF

Today is the first day of trading for the Schwab Ariel ESG ETF (SAEF), an active, semi-transparent ETF that invests in small- and mid-cap stocks that have been screened based on environmental, social, and governance (ESG) factors. Schwab Asset Management launched SAEF with Ariel Investments, LLC, acting as sub-advisor. ETF Trends recently had a chance to learn more about the launch.

In describing what factors contributed to this being the time for Schwab’s first ESG fund, Malik Sievers, head of ESG strategy for Schwab, explained that “Schwab and Ariel are addressing a gap in the market. By collaborating with Ariel, we are delivering a fund managed by two leading firms with unparalleled ESG and ETF capabilities to offer investors access to value-oriented, small- and mid-cap U.S. equities with rigorous ESG screening and deep fundamental analysis.”

As far as this being a collaboration with Ariel Investments, Sievers stated, “Schwab and Ariel are a powerful combination, and have had a collaborative relationship that spans 20+ years, starting with the Ariel-Schwab Black Investor Survey that was first completed in 1998. Our strengths are complementary, and our values are aligned.”

Ariel, the first African American-owned asset management firm in the U.S., brings nearly 40 years of experience integrating ESG factors into every phase of its investment process. It is true that Schwab and Ariel Investments have a long-standing relationship and have collaborated for over 20 years on the Ariel-Schwab Black Investor Survey, a body of research that explores the similarities and differences between Black and white Americans when it comes to saving, investing, and other financial priorities.

Ariel Investments’ Ken Kuhrt, executive vice president and co-lead portfolio manager of the Schwab Ariel ESG ETF, had additional thoughts regarding this ESG fund being unique compared to others. Based on the focus on small- and mid-cap equity securities, Kuhrt explained, “Ariel’s active ESG analysis encompasses a more thoughtful approach. Ariel considers multiple factors versus relying solely on third-party ESG rating systems or historical company metrics. Strategies that rely exclusively on third-party rating systems or historical company data may not provide the same opportunities as an actively managed ESG approach. Ariel consistently engages with portfolio company management teams to address ESG issues deemed material to long-term financial health.”

Kuhrt continued, “As it relates to active SMID-cap ESG approaches, we’ve found that inefficient asset classes provide an opportunity to add value given small- and mid-cap stocks are not widely covered by sell-side firms. Our proprietary ESG risk ratings are informed by assessments of industry exposure, disclosure, and management of material ESG issues.”

With all of these concepts in place, regarding the long-term expectations for SAEF, Sievers explained, “Given the increasing demand and gap that this product fills, we believe the demand for the new Schwab Ariel ESG ETF will increase over time.”

For more information about SAEF, review the prospectus here.

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