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Is iShares ESG Aware MSCI USA ETF (ESGU) a Strong ETF Right Now?

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Launched on 12/01/2016, the iShares ESG Aware MSCI USA ETF (ESGU - Free Report) is a smart beta exchange traded fund offering broad exposure to the Style Box - All Cap Growth category of the market.

What Are Smart Beta ETFs?

Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

ESGU is managed by Blackrock, and this fund has amassed over $21.87 billion, which makes it the largest ETF in the Style Box - All Cap Growth. This particular fund seeks to match the performance of the MSCI USA ESG Focus Index before fees and expenses.

The MSCI USA Extended ESG Focus Index comprises of U.S. companies that have positive environmental, social and governance characteristics while exhibiting risk and return characteristics similar to those of the parent index.

Cost & Other Expenses

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Operating expenses on an annual basis are 0.15% for ESGU, making it one of the cheaper products in the space.

The fund has a 12-month trailing dividend yield of 1.37%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

This ETF has heaviest allocation in the Information Technology sector - about 28.20% of the portfolio. Healthcare and Financials round out the top three.

Looking at individual holdings, Apple Inc (AAPL - Free Report) accounts for about 6.85% of total assets, followed by Microsoft Corp (MSFT - Free Report) and Amazon Com Inc (AMZN - Free Report) .

ESGU's top 10 holdings account for about 26.56% of its total assets under management.

Performance and Risk

The ETF has lost about -18.91% and is down about -7.38% so far this year and in the past one year (as of 05/25/2022), respectively. ESGU has traded between $86.69 and $108.46 during this last 52-week period.

The fund has a beta of 1.01 and standard deviation of 23.82% for the trailing three-year period. With about 325 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares ESG Aware MSCI USA ETF is a reasonable option for investors seeking to outperform the Style Box - All Cap Growth segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard ESG U.S. Stock ETF (ESGV - Free Report) tracks FTSE US ALL CAP CHOICE INDEX and the iShares ESG Aware MSCI EAFE ETF (ESGD - Free Report) tracks MSCI EAFE ESG Focus Index. Vanguard ESG U.S. Stock ETF has $5.50 billion in assets, iShares ESG Aware MSCI EAFE ETF has $7.02 billion. ESGV has an expense ratio of 0.09% and ESGD charges 0.20%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - All Cap Growth.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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