Industry Updates

Investors rotate $3bn from BlackRock factor ETFs to ESG equivalents

The shifts come during a period of prominence for both smart beta and ESG strategies

Jamie Gordon

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There were almost $3bn outflows from two factor ETFs last week while their ESG counterparts saw the equivalent inflows, in a further sign of the ongoing shift to sustainable investments in Europe.

According to data from Ultumus, the iShares Edge MSCI USA Value Factor UCITS ETF (IUVF) and iShares Edge MSCI USA Momentum Factor UCITS ETF (IUMF) saw $1.5bn and $1.4bn outflows, respectively, in the week ending 9 July.

Over the same period, mirroring volumes poured into the iShares MSCI USA Momentum Factor ESG UCITS ETF (IUME) and iShares MSCI USA Value Factor ESG UCITS ETF (IUVE), gathering $1.5bn and $1.4bn new assets, respectively.

These figures represent an extension of a broader trend in European asset allocation, with Jose Garcia-Zarate, associate director, passive strategies research at Morningstar, previously noting investors are switching out their core exposures for ESG equivalents. 

Investors start to replace core holdings with ESG ETFs

This shift has been especially pronounced over the last half year or so, Zarate said, and with factor ETFs coming back into vogue following the rotation to cyclical equities, a desire to add ESG screens to smart beta exposures appears to coincide with their return to prominence.

By the end of May, 11% of all European ETP assets were in ESG strategies, according to data from Bloomberg Intelligence.

Added to this, 42% of all new assets went into either ESG or smart beta exposures over the 12 months to 26 May.

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Having booked $5.5bn inflows into its EMEA-listed sustainable ETPs in June, BlackRock declined to confirm whether the recent bulk buy of IUME and IUVE came from a single trade.

A spokesperson said: “Factors have long been used to express investment views and build more resilient portfolios, now factor based ESG ETFs can also help investors achieve their sustainability goals.”

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