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Is FlexShares STOXX US ESG Select Index Fund (ESG) a Strong ETF Right Now?

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Designed to provide broad exposure to the Style Box - Large Cap Blend category of the market, the FlexShares STOXX US ESG Select Index Fund (ESG - Free Report) is a smart beta exchange traded fund launched on 07/13/2016.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

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.

This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.

Fund Sponsor & Index

Because the fund has amassed over $201.53 million, this makes it one of the average sized ETFs in the Style Box - Large Cap Blend. ESG is managed by Flexshares. Before fees and expenses, ESG seeks to match the performance of the STOXX USA ESG Impact Index.

The STOXX USA ESG Select KPIs Index is an optimized index designed to provide broad market exposure that is tilted toward U.S. companies that score better with respect to a small set of environmental, social and governance characteristics and to provide the potential for attractive risk-adjusted performance relative to the STOXX USA 900 Index.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Operating expenses on an annual basis are 0.32% for this ETF, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 1.03%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

ESG's heaviest allocation is in the Information Technology sector, which is about 26% of the portfolio. Its Financials and Healthcare round out the top three.

Taking into account individual holdings, Microsoft Corp Common Stock Usd 0.00000625 (MSFT - Free Report) accounts for about 5.40% of the fund's total assets, followed by Apple Inc Common Stock Usd 0.00001 (AAPL - Free Report) and Inc Common Stock Usd 0.01 (AMZN - Free Report) .

The top 10 holdings account for about 35.25% of total assets under management.

Performance and Risk

The ETF has added about 6.68% so far this year and it's up approximately 29.82% in the last one year (as of 02/23/2024). In the past 52-week period, it has traded between $93.17 and $123.78.

The fund has a beta of 1.03 and standard deviation of 17.75% for the trailing three-year period. With about 266 holdings, it effectively diversifies company-specific risk.


FlexShares STOXX US ESG Select Index Fund is a reasonable option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

JPMorgan Nasdaq Equity Premium Income ETF (JEPQ - Free Report) tracks ---------------------------------------- and the iShares ESG Aware MSCI USA ETF (ESGU - Free Report) tracks MSCI USA ESG Focus Index. JPMorgan Nasdaq Equity Premium Income ETF has $10.34 billion in assets, iShares ESG Aware MSCI USA ETF has $13.43 billion. JEPQ has an expense ratio of 0.35% and ESGU charges 0.15%.

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 - Large Cap Blend.

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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