Analyst Report

The Xtrackers MSCI ACWI ex USA ESG Leaders Equity ETF (ACSG)
tracks an MSCI index of global stocks outside the U.S., selecting those securities that score the highest relative to their peers on environmental, social and governance factors, known by the acronym ESG. ACSG includes companies that score in the top 50% of scores in each sector — and so will own about half as many companies as the parent index — then weights those stocks to keep the sector allocation in line with the parent index. The fund excludes companies involved in alcohol, tobacco, gambling, controversial and conventional weapons, nuclear power, and civilian firearms.

ACSG’s management fee is competitive with the rival Vanguard ESG International Stock ETF (VSGX), but the Vanguard fund has significantly more assets and daily liquidity. The Vanguard fund follows a different index and has more stocks in its portfolio than ACSG, but both funds offer broadly similar regional exposure.

Issuers have rolled out dozens of ESG-style funds in recent years to appeal to younger investors who are concerned about the social impact of their investments. ESG (the strategy, not the ticker) is different from traditional socially-responsible investing, which typically tried to exclude bad actors and industries. Many advisers worried that this came at the expense of diversification and returns. today’s strategies aim to be more inclusive. Instead of ignoring large swathes of the market, the goal is maintain market-like diversification with a tilt toward the best corporate citizens. It’s worth nothing that there are plenty of skeptics when it comes to ESG investing, and critics say ESG whitewashes a portfolio rather than driving companies to truly change their behavior. Investors who prefer plain-vanilla ETFs can take a look at funds like the FTSE All-World ex-US ETF (VEU) or the iShares Core MSCI Total International Stock ETF (IXUS).