BlackRock is forecasting solid growth for funds following ESG investing principles and is showing a willingness to meet the expected demand for those products. On Tuesday, BlackRock's iShares unit rolled out a new fixed income ESG ETF.
The iShares ESG U.S. Aggregate Bond ETF (EAGG), with an expense ratio of 0.10%, 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), which have expense ratios of 0.17% and 0.12%, respectively, according to Morningstar.
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 AUM. Globally, that number jumps to $25 billion, but that represents a meager percentage of overall ETF assets.
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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," the asset manager said. "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.
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.
