BlackRock, Inc. (BLK), the world's largest asset manager, is forecasting epic growth for funds following environmental, social and governance (ESG) investing principles and is showing a willingness to meet the expected demand for those products. On Tuesday, BlackRock's iShares unit, the world's largest issuer of exchange-traded funds (ETFs), rolled a new fixed income ESG ETF.
The iShares ESG U.S. Aggregate Bond ETF (EAGG) will join six other established iShares ETFs in a product suite known as iShares Sustainable Core ETFs. That group includes four equity ETFs and two other bond ETFs besides the new EAGG. Funds in the iShares Sustainable Core ETFs suite include the iShares ESG MSCI USA Small-Cap ETF (ESML) and the iShares ESG 1-5 Year USD Corporate Bond ETF (SUSB).
The debut of EAGG, which offers an ESG view on the popular Bloomberg Barclays Aggregate Bond Index, comes as BlackRock forecast major growth for ESG funds, including ETFs and mutual funds. Today in the U.S., there are just over 50 ESG ETFs with a little more than $6 billion in combined assets under management. Globally, that number jumps to $25 billion, but that represents a meager percentage of overall ETF assets.
BlackRock believes that, by 2028, there will be $400 billion allocated to ESG funds. If accurate, this forecast means that ESG strategies will jump to 21% of total fund assets, up from just 3% today. "A new and more diverse generation of investors are seeking sustainable solutions for the heart of their investment portfolios," said the asset manager. "Evolving government policy is prompting large institutions around the world to put capital towards sustainable investments."
EAGG looks "to track the investment results of an index composed of U.S. dollar-denominated, investment-grade bonds from issuers generally evaluated for favorable environmental, social and governance practices while exhibiting risk and return characteristics similar to those of the broad U.S. dollar-denominated investment-grade bond market," according to iShares.
While some U.S.-listed ESG ETFs have struggled to gain traction with investors, one way for issuers to reverse that trend is with attractive fees. EAGG is doing just that with an annual expense ratio of 0.10%, the equivalent of $10 on a $10,000 investment. The new EAGG holds 281 bonds and has an effective duration of 5.94 years. That duration is in line with the iShares Core U.S. Aggregate Bond ETF (AGG), but AGG holds nearly 6,900 bonds. Nearly 73% of EAGG's holdings are rated AAA.