In a growing field of environmental, social, and governance (ESG) and ETFs, it can be difficult for investors to identify which product is right for them, but the iShares ESG MSCI USA Leaders ETF (SUSL) is one of the more credible options.
SUSL, which tracks the MSCI USA Extended ESG Leaders Index, is just 13 months old and already has $2.29 billion in assets under management, easily making it one of the largest funds in the category.
“This strategy has a lot going for it. It focuses on financially material ESG risks and opportunities within each industry, which could make it more palatable for investors who are more interested in long-term investment value than nonfinancial values,” said Morningstar analyst Alex Bryan in a recent note. “And this is one of the cheapest ESG funds around. SUSL has moderate active risk, so it could serve as a core U.S. stock holding. It uses a simple stock-selection approach with no explicit constraints that force it to own industry laggards, though it may still own some fossil fuel companies. While it isn’t as well diversified as broad-market index funds, this is a strong option overall.”
Sizing up SUSL
Environmental, social and governance (ESG) ETFs are taking off in a big way and an industry leader is promising to offer investors even more avenues for sustainable and virtuous investing.
Institutional investors have been a big driver behind the growth in sustainable investing. In addition, individual investors, especially Millennials and women, are becoming more attracted to the availability and potential benefits of the ESG investment styles. The potential shift in investment demand represents an opportunity for financial advisors with an understanding of the space to provide guidance to clients looking to align portfolios more closely with their individual core values.
SUSL’s “underlying ESG ratings are tailored to each industry, focusing on the most relevant ESG risks and opportunities that could affect long-term financial performance,” notes Bryan. “For example, packaging material and waste is more relevant for consumer-oriented firms than it is for banks. That factor may influence the ESG ratings in the soft-drink industry, but not in banking, where privacy and data security are more relevant.”
Like many ESG ETFs, SUSL is overweight technology stocks. That sector accounts for 27.15% of the fund’s weight. Alone, Microsoft (MSFT) commands over 10% of SUSL’s roster.