The biggest low-volatility fund has seen more outflows than any other equity ETF this year, as investors shun the defensive trade for riskier stocks. Now BlackRock Inc. is betting the systematic strategy can find new fans with a little help from the ESG boom.
The largest issuer of exchange-traded funds has just launched the iShares ESG MSCI USA Min Vol Factor ETF (ticker ESMV). It’s a socially conscious take on the now-$29 billion iShares MSCI USA Min Vol Factor ETF (USMV), which has been hit by $8 billion in outflows this year.
Those withdrawals came even as USMV gained more than 16% and cash flooded into practically every other kind of ETF — including those devoted to socially responsible investments. The fund was caught in the Covid crash, and is only now arresting redemptions with the first net inflows in 17 months in October.
“It could be smart to launch after an awful run for min vol because they can catch the inevitable comeback,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. “But it may be too specific a category to ESG-ify so I’m skeptical there’s any real organic demand.”
Nonetheless, ESMV is looking to ride the rush into investments with higher environmental, social and governance standards by bidding up low-volatility stocks in the category. Some $93 billion has been added to ESG ETFs this year, according to BI, already the best year ever.
BlackRock is reaping major benefits from its push into socially responsible investing. Of the $98 billion in long-term net flows the firm took in last quarter, about $32 billion went into sustainable funds — a quarterly record.
A spokesperson for the money manager said the new launch reflected efforts to provide clients with more sustainable options. In its 2020 letter to clients the firm laid out plans to create ESG versions of its flagship products.
The new fund will track the MSCI USA Minimum Volatility Extended ESG Reduced Carbon Target Index, which has returned 18.6% this year. That compares with 16.4% for the MSCI USA Minimum Volatility Daily Gross Total Return USD Index — the gauge followed by its sibling.
ESMV carries an expense ratio of 0.18%, just above USMV’s 0.15%.
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