New iShares ETFs Will Exclude Gun Makers, Retailers

After the shooting at at Marjory Stoneman Douglas High School in Parkland, Florida, BlackRock, Inc. (BLK) was one of the first asset managers to respond to investors who were wondering if the funds they were invested in included shares of gun makers. BlackRock, the owner of iShares, the world's largest issuer of exchange-traded funds (ETFs), took a proactive approach, telling investors that 95% of its passively managed funds did not hold shares of American Outdoor Brands Corporation (AOBC), Vista Outdoor Inc. (VSTO) and Sturm, Ruger & Company, Inc. (RGR) while noting that no BlackRock active mutual funds owned those gun stocks.

BlackRock is keeping up that proactive approach. The company said Thursday that it will add to its stable of environmental, social and governance (ESG) ETFs with two new products that exclude shares of civilian firearms makers. The iShares MSCI USA Small-Cap ESG Optimized ETF (ESML) could launch as soon as next week. (See also: 3 Trends to Watch in ESG Investing.)

"ESML will seek to track the investment results of the MSCI USA Small Cap Extended ESG Focus Index, which is composed of small-cap U.S. companies that have favorable ESG characteristics, and also will exclude all producers and large retailers of civilian firearms," said BlackRock. Although the exposure is tiny, some traditional small-cap benchmarks, including the widely followed Russell 2000 Index, have shares of gun makers. Only index providers, not ETF sponsors, can decide which stocks reside in a particular benchmark.

BlackRock is also adding an ESG fixed income ETF, the iShares ESG US Aggregate Bond ETF, which could debut later this year. "This proposed ETF will be based on a new index by Bloomberg Barclays, with ESG rating inputs from MSCI ESG Research, and that excludes all producers and large retailers of civilian firearms," said BlackRock. "The underlying index that this ETF will seek to track is an optimized fixed-income index designed to reflect the performance of U.S. dollar-denominated investment-grade bonds issued by companies evaluated for favorable ESG characteristics, while exhibiting risk and return characteristics similar to those of the Bloomberg Barclays US Aggregate Bond Index." (See also: ESG and Bonds: It's A Match.)

The ETF issuer also said that it is lowering fees on two of its most popular ESG funds. The iShares MSCI KLD 400 Social ETF (DSI) and the iShares MSCI USA ESG Select ETF (SUSA) now have annual expense ratios of 0.25%, down from 0.50%. DSI and SUSA have $1.01 billion and $673.3 million in assets under management, respectively.

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