iShares combines factor investing expertise with sustainability in new ESG factor ETF suite
iShares is broadening its range of exchange traded funds (ETFs) with three new products that combine environmental, social and governance (ESG) issues with the growing demand for minimum volatility factor strategies.
BlackRock says the launch is another milestone in its commitment to making sustainability its standard for investing and expand choice in sustainable indexing, an industry that the firm expects to attract USD1.2 trillion in new assets in the next decade.
Investment into ESG and minimum volatility strategies both continue to accelerate as market turmoil tests the resilience of portfolios. Inflows into global sustainable ETFs alone totaled USD14.8bn in the Q1 of 2020, more than three times the Q1 2019 figure*. Clients have also increasingly turned to iShares factor strategies to target specific drivers of risk and return in their portfolios. Minimum volatility, most notably, is one style factor that has shined by limiting clients’ downside market exposure in volatile times.
Through the first three months of 2020, iShares Edge MSCI Minimum Volatility UCITS ETFs has provided clients with an average outperformance of 4 per cent return compared to their parent indices taking less downside exposure while helping them capture most of the market upside. This defensive approach has helped attract USD0.8bn in investor assets into iShares UCITS Minimum Volatility in Q1 2020, building on USD1.3bn gathered in 2019.
By combining BlackRock’s leadership in factor investing with increasing demand for ESG strategies, iShares’ new funds are designed to deliver an improved ESG profile and reduced carbon exposure while also achieving market-like returns with less risk. Each of the funds is benchmarked to MSCI Minimum Volatility ESG Reduced Carbon Target Indices**. These launches take iShares’ line-up of sustainable ETFs and index funds past 100.
The three new products are:
• iShares EDGE MSCI World Minimum Volatility ESG UCITS ETF (MVEW): This fund provides diversified exposure to a broad range of developed world companies with international market exposure and lower volatility characteristics. It carries a TER of 0.30 per cent and is the ESG alternative to the iShares EDGE MSCI World Minimum Volatility UCITS ETF (MVOL).
• iShares EDGE MSCI Europe Minimum Volatility ESG UCITS ETF (MVEE): An ESG alternative to the iShares EDGE MSCI Europe Minimum Volatility UCITS ETF (MVEU), the fund focuses on diversified exposure to European companies with lower volatility characteristics and carries a TER of 0.25 per cent.
• iShares EDGE MSCI USA Minimum Volatility ESG UCITS ETF (MVEA): provides diversified exposure to US companies with lower volatility characteristics relative to the broader US equity market. The fund carries a TER of 0.20 per cent and is the ESG alternative to the iShares Edge S&P 500 Minimum Volatility UCITS ETF (SPMV).
Stephen Cohen, Head of iShares EMEA at BlackRock, says: “As investors take stock of their tactical and strategic positioning, ETFs are playing a central role in portfolios that are increasingly tilted towards ESG criteria. We have seen record growth in our sustainable suite, and we remain focused on building the most comprehensive, innovative set of ESG ETFs to meet and anticipate the needs of investors.”
Over the next decade, BlackRock is forecasting assets invested in sustainable index funds and ETFs to grow by USD1 trillion to USD1.2 trillion, owing to four drivers:
1 Recognition that sustainability influences risk and returns – There is mounting evidence that ESG criteria are consequential for returns, which is enabling the evolution of sustainable investing from values-based to value driven.
2 Better data leads to better indexes – Companies are increasingly disclosing more information about their ESG practices and that information is increasingly standardised. The greater disclosure means more comprehensive coverage from ESG rating firms, data aggregators and specialised data providers that in turn feeds into enhanced sustainable indices.
3 Access to ESG at a fraction of the cost – iShares believes indexing will do for sustainable investing what it did for investing in stocks and bonds. Until recently, sustainable investment strategies were almost exclusively available through higher-fee active strategies or customized mandates. Globally, the average actively managed sustainable mutual fund fee is five times higher than the average iShares sustainable ETF.
4 Sustainable choices for every portfolio – Indexing has created greater choice for investors to build their entire portfolio based on sustainable funds. Sustainable indices allow investors to screen out sectors and industries, improve the ESG ratings of their portfolio or invest in specific types of investment outcomes.
Philipp Hildebrand, Vice Chairman at BlackRock, says: “The seismic reallocation of assets into sustainable investment strategies is underway and will only accelerate from here. The resilience of sustainable strategy returns amid the ongoing market turmoil, in delivering better portfolio outcomes, is notable and will further fuel demand for sustainable building blocks. Indexed products are enabling large scale integration of sustainable criteria into the portfolios of wealth managers and institutions across the globe, and this is only the start.”