ESML: Proving That Ethics Is Not A Drag In Small Caps

seekingalpha2024-06-24

Antoniooo/E+ via Getty Images ESML strategy iShares ESG Aware MSCI USA Small-Cap ETF (BATS:ESML) started investing operations on 4/10/2018 and tracks the MSCI USA Small Cap Extended ESG Focus Index. ...

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I","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4534":"瑞士信贷持仓","USXF":"iShares ESG Advanced MSCI USA ETF","BK4535":"淡马锡持仓","ESG":"FlexShares STOXX US ESG Select Index Fund","TWM":"罗素2000指数两倍做空ETF","BK4550":"红杉资本持仓","BK4588":"碎股","FDN":"First Trust Dow Jones Internet I","TNA":"罗素2000指数三倍做多ETF-Direxion","IWM":"罗素2000指数ETF","ESGU":"iShares ESG Aware MSCI USA ETF","ESGV":"Vanguard ESG US Stock ETF","BK4581":"高盛持仓","SRTY":"罗素2000指数三倍做空ETF-ProShares","ESML":"iShares ESG Aware MSCI USA Small-Cap ETF","RWM":"罗素2000指数反向ETF","IWN":"罗素2000价值股指数ETF-iShares","TZA":"罗素2000指数三倍做空ETF","IWO":"罗素2000成长股指数ETF","UWM":"罗素2000指数ETF两倍做多","NULG":"Nuveen ESG Large-Cap Growth ETF","EFIV":"SPDR S&P 500 ESG ETF","BK4585":"ETF&股票定投概念"},"translate_title":"ESML：证明道德不是小盘股的拖累","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"USXF":1,"EFIV":1,"ESG":1,"ESGU":1,"ESGV":1,"ESML":1,"IWM":1,"NULG":1,"FDN":0.9,"MNQmain":0.6,"UWM":0.6,"TZA":0.6,"TWM":0.6,"TNA":0.6,"SRTY":0.6,"RWM":0.6,"IWO":0.6,"IWN":0.6,"MRTYmain":0.6},"content_text":"Antoniooo/E+ via Getty Images ESML strategy iShares ESG Aware MSCI USA Small-Cap ETF (BATS:ESML) started investing operations on 4/10/2018 and tracks the MSCI USA Small Cap Extended ESG Focus Index. It implements an environmental, social, and corporate governance (\"ESG\") investing approach. ESML has 902 holdings, a 30-day SEC yield of 1.24% and a total expense ratio of 0.17%. Distributions are paid quarterly. The fund's objective is to \"maximize exposure to positive environmental, social and governance (ESG) factors while exhibiting risk and return characteristics similar to those of the MSCI USA Small Cap Index\". As described by the index provider MSCI, eligible stocks must be in the MSCI USA Small Cap Index and not be in the following categories:  Tobacco producers and licensors, as well as distributors and retailers earning 15% or more of revenues from tobacco products. Companies involved in the production of cluster weapons, landmines, depleted uranium weapons, chemical weapons, biological weapons.  Civilian arms producers, as well as distributors and retailers earning more than 5% or $20 million of revenues from civilian arms. Companies involved in certain fossil fuels-related activity such as the production of thermal coal, thermal coal-based power generation and extraction of oil sands.  Companies may also be excluded if they get a red flag from:  MSCI ESG Ratings, based on research and analysis of how companies manage environmental, social and governance risks. MSCI ESG Controversies Score, based on norms of the UN Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, and the UN Global Compact.  The portfolio turnover rate in the most recent fiscal year was 37%. This article will use as a benchmark the Russell 2000 Index, represented by iShares Russell 2000 ETF (IWM). ESML portfolio The fund is almost exclusively invested in US-based companies (about 98% of asset value). The portfolio is well-diversified across sectors, with a focus on industrials (19.7% of asset value). Then, come financials (14.9%), consumer discretionary (14.8%), technology (13.4%) and healthcare (12.8%). Other sectors are below 6%. ESML sector breakdown is not much different from the Russell 2000. It moderately overweights industrials and consumer discretionary relative to the small cap benchmark, while it underweights technology, healthcare and energy. ESML sector breakdown in % (chart: author; data: iShares) The top 10 holdings, listed in the next table with fundamental ratios, represent only 4% of assets, and the largest position weighs 0.56%. Therefore, the portfolio is highly diversified and risks related to individual companies are very low.   Ticker Name Weight% EPS growth %TTM P/E ttm P/E fwd Yield%   CASY Casey's General Stores, Inc. 0.56 12.74 27.68 26.22 0.54   JHG Janus Henderson Group PLC 0.44 24.27 12.82 11.69 4.60   KBR KBR, Inc. 0.42 -183.78 N/A 19.84 0.94   USFD US Foods Holding Corp. 0.40 52.42 26.33 17.16 0   REXR Rexford Industrial Realty, Inc. 0.39 15.88 40.55 40.00 3.75   INGR Ingredion, Inc. 0.37 20.85 11.57 11.99 2.70   GWRE Guidewire Software, Inc. 0.36 92.90 N/A 108.39 0   FTI TechnipFMC plc 0.35 565.84 52.93 20.85 0.80   JLL Jones Lang LaSalle, Inc. 0.34 -39.10 33.54 16.96 0   MUSA Murphy USA, Inc. 0.34 -11.13 20.12 19.62 0.37   Click to enlarge Fundamentals ESML is slightly more expensive than the benchmark regarding valuation ratios, as reported in the next table. Aggregate growth rates are similar, except cash flow growth, which is materially lower.     ESML SPY   Price/Earnings 17.06 15.41   Price/Book 2.09 1.89   Price/Sales 1.2 1.22   Price/Cash Flow 10.19 9.02   Earnings growth % 18.69% 20.11%   Sales growth % 5.58% 5.45%   Cash flow growth % 6.25% 11.69%   Click to enlarge Data: Fidelity Historical performance Since its inception, ESML has outperformed the Russell 2000 by about 20% in total return. ESML vs. IWM since inception (Seeking Alpha) Nonetheless, it has been very close to the benchmark over the last 12 months: ESML vs. IWM, 12-month return (Seeking Alpha) ESML vs. competitors The next table compares characteristics of ESML and five ESG ETFs:  iShares ESG Advanced MSCI USA ETF (USXF) Nuveen ESG Large-Cap Growth ETF (NULG) Vanguard ESG U.S. Stock ETF (ESGV) iShares ESG Aware MSCI USA ETF (ESGU) SPDR S&P 500 ESG ETF (EFIV)  Unlike ESML, these funds are mostly focused on large companies.     ESML USXF NULG ESGV ESGU EFIV   Inception 4/10/2018 6/16/2020 12/13/2016 9/18/2018 12/1/2016 7/27/2020   Expense Ratio 0.17% 0.10% 0.26% 0.09% 0.15% 0.10%   AUM $1.59B $1.09B $1.47B $8.87B $12.91B $1.26B   Avg Daily Volume $5.29M $3.20M $4.85M $17.79M $98.48M $3.51M   Holdings 902 361 77 1435 281 326   Top 10 3.98% 32.82% 42.10% 35.38% 33.78% 42.38%   Turnover 37.00% 12.00% 78.00% 3.00% 25.00% 12.00%   Click to enlarge ESML is the least concentrated in the top holdings and has the second highest turnover. The next chart plots total returns, starting on 7/28/2020 to match all inception dates. ESML is lagging the pack in this 4-year time frame, but it was leading it in 2021 and 2022. This is consistent with the recent underperformance of small caps relative to the broad market. ESML vs. competitors, since 7/28/2020 (Seeking Alpha) ESML is more than 15% behind large cap ESG funds over the last 12 months: ESML vs. competitors, 12-month return (Seeking Alpha) Takeaway  iShares ESG Aware MSCI USA Small-Cap ETF (ESML) implements an environmental, social, and corporate governance (\"ESG\") strategy focused on small companies. ESML is well diversified across sectors and holdings. Its fundamental metrics are a bit inferior to the small cap benchmark Russell 2000, but performance since inception is significantly better. ESML is lagging other ESG ETFs, which are mostly focused on large cap companies. In summary, ESML has reached its objective of investing in small caps with high ethical standards without compromising performance. Nevertheless, the fund's history is short and may not be representative of the long-term potential of its strategy.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.4","shortVersion":"4.29.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2445077861"}