Product Panel: BlackRock iShares's new ESG range
BlackRock is clearly keen to be seen to be making the ESG running after it announced at the start of the week it was adding six ESG-led funds to its core range both in the US and Europe. The new range tracks MSCI indices which screen out controversial weapons, nuclear weapons, civilian firearms and tobacco as well as companies implicated in the violation of the United Nations Global Compact principles, and firms working in thermal coal and oil sands. BlackRock makes the point that these new funds are priced the at the same level as the core range - between 7 and 20 basis points - therefore simplifying ESG investing for many.
What the provider says
Stephen Cohen, head of iShares for Europe at BlackRock, said that "just as iShares Core ETFs have dramatically simplified the investor experience, we believe this complementary range will play a key role in bringing sustainable investing to the heart of investor portfolios." Philipp Hildebrand, vice chairman at BlackRock, added that the new range is designed to match the "growing movement of investors" looking to align their investment decisions with their wider belief particularly with regard to the environment and sustainability. "Increased transparency on the sustainability profile of their investment portfolios will enable investors to understand the potential ESG-related risks and opportunities they are exposed to," he said. "Strong ESG performers are more resilient and this has led to an irreversible move from an era of asking 'why?' to 'why not?' in sustainable investing."
What the panel says
Nicolas Rabener, Factor Research
BlackRock's push into ESG is commercial as well as personal as its chief executive Larry Fink has been an advocate of long-term thinking for many years. Investors might have expected that the new core suite of ESG screened ETFs are priced at a premium, but they are offered at the same fees as the existing products. The more difficult question is if sustainable investing adds or subtracts alpha. Some academic papers show that sin stocks, i.e. companies that produce alcohol, sell weapons, run casinos or conduct similar activities, outperform. It would seem too good to be true that investing in good corporate citizens is actually accretive to returns. However, more recently there has been some research, albeit mostly from product providers, highlighting higher returns from ESG stocks. The jury is still out on the matter.
Oliver Smith, IG
Sustainable investing is being taken ever more seriously by charities and institutions. BlackRock forecasts strong growth in this area and has responded with a highly competitively priced selection of ETFs, which the competition will find hard to match. A bugbear of investors is that you have to 'pay up' for sustainability; the 12bps charge on iShares MSCI Europe ESG Screened (SAEU) shows this is no longer the case, matching the cost of the equivalent product in the iShares Core range. Where this leaves iShares existing - and slightly more expensive - SRI product line is difficult to determine, but in the short-term investors have the choice of two similar products from one provider.
James McManus, Nutmeg
These indices are new, and have been developed in conjunction with iShares/iShares clients, and therefore have a limited live track record, though clearly the screens are something you can easily implement to back test without too much bias. They are designed to limit the tracking error to main market indices rather than be a full throttle take on sustainability in our view, and thus operate only on a screening basis where companies involved in certain activities are removed from the portfolio. It's really important when looking at any sustainable product that investors look under the hood - what is the product actually intending to achieve? Is this about returns or about alignment with values? The labels can be confusing, because there is no standardisation of terms in sustainable investing, and it can be very difficult to understand what impact funds are having outside of how they are described. For some investors screening out certain activities may be all they're looking for, but others might want to know what positive impact their investment is having. The fantastic news for investors is that iShares have priced these products very competitively - equivalent to their market cap alternatives. With a limited tracking error and the same pricing, investors have the option to remove several potentially undesirable business activities from their portfolio with the knowledge that their risk and return profiles will not be significantly altered. This could be the stepping stone the industry needs towards more sustainable investment strategies at the core of client portfolios.
Timo Pfeiffer, Solactive
It¬¥s just logic and no surprise to see the launches of ishares¬¥ new ESG Core range. There¬¥s already a very broad offering out there and I guess much more will be emerging soon. The only question that remains for me is why the strategies merely focus on exclusion criteria. I regard this as the bare minimum when it comes to implementing ESG-based strategies. There¬¥s clear consensus around the world as of which controversial activities should be included as they simply cause damage and consequently, investors don¬¥t want to see them in their passive product holdings. The next steps to go will have to include a more specific, pro-active filtering approach of companies that do particularly well in the different areas of E, S and G. Some of those strategies are already out there, but I personally expect them to become significantly more and a core part of investor¬¥s asset allocation. Let¬¥s wait and see.
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