The biggest ETF launch ever is just a $2 billion ESG fund shuffle

The record-breaking fund was the Extractors MSCI USA Climate Action Equity ETF (ticker USCA), which debuted with $2 billion in assets on Tuesday — outpacing the $1.35 billion launch of the Goldman Sachs MarketBeta US 1000 Equity ETF (GUSA). achieved the top position. ,

But far from setting a new marker for the ETF industry or the popularity of investments that meet high environmental, social or governance standards, it was merely a shuffling. The cash provided by Finnish pension giant Keskinainen Elakvaakutusihtio Ilmarinen was just transferred from the Xtracors MSCI USA ESG Leaders Equity ETF (USSG), which duly recorded an outflow of $2 billion on Tuesday – a record for the fund. .

Amanda Rebello, Head of Extractors Sales, US Onshore at DWS Group, said the new fund is more targeted towards climate goals of investors.

“There’s a lot more urgency to this climate angle, especially than broad-based ESG,” Rebello said in an interview.

Still, some may question how much of an impact the change will have. A look at the two funds’ investments shows that seven companies appear in the top 10 holdings of both vehicles, including names like Microsoft Corp. and Alphabet Inc.

“The change was made to better participate in the climate megatrend,” Juha Vanlainen, a senior portfolio manager at Helsinki-based Ilmarinen, wrote in an email. Changes over time should bring us closer to our goal of being carbon neutral by the end of 2035.”

It will also save the firm some cash. While USSG is cheaper with a fee of 0.1%, USCA goes even further with an expense ratio of 0.07%.

With more than 3,000 ETFs now trading in the U.S., new funds routinely face a struggle for assets and many fail when they struggle to attract investors. Launched with a heavy commitment from Ilmarinen, USCA’s survival is assured, but there’s no guarantee it will attract further cash.

The BlackRock US Carbon Transition Readiness ETF (LCTU) boasts the largest ETF launch ever, making its 2021 debut. Since then, it rarely sees large flows in or out. It added less than $100 million in net new cash in the past year.

James Seifert, an ETF co-founder, said, “The story here with USCA is less about it being a big launch and more about the fact that they were able to pull $2 billion out of an ETF and $3 billion without a market impact.” 2 billion into another brand new ETF.” Bloomberg Intelligence analyst. He added that the ease with which the switch occurred “reflects the efficiency and agility of the ETF structure and creation/redemption process.”