(ESML) iShares ESG Aware MSCI USA - Ratings and Ratios

The iShares ESG Aware MSCI USA Small-Cap ETF (ESML) is designed to track the performance of small-cap U.S. companies while integrating environmental, social, and governance (ESG) criteria into its investment strategy. The fund primarily invests in the securities of the MSCI USA Small Cap Index but adjusts its holdings to favor companies with stronger ESG profiles, as determined by MSCIs ESG ratings. This approach aims to align with the growing demand for sustainable investing without significantly deviating from the performance of the broader small-cap market.

From a structural standpoint, ESML allocates at least 90% of its assets to the component securities of its underlying index. This ensures tight tracking of the indexs performance while allowing for a modest allocation—up to 10% of its assets—to derivatives such as futures, options, and swap contracts. These instruments are typically used for efficient portfolio management, risk reduction, or to maintain liquidity. The fund may also hold cash and cash equivalents, which can be used to meet redemption requests or take advantage of market opportunities.

The underlying index, the MSCI USA Small Cap ESG Optimized Index, employs an optimization technique to enhance ESG exposure relative to the MSCI USA Small Cap Index (the parent index). This means the fund systematically overweights companies with higher ESG ratings and underweights or excludes those with lower ratings, subject to constraints that ensure the portfolio remains closely aligned with the parent index in terms of sector and size characteristics. This balancing act is critical for investors seeking ESG integration without sacrificing broad market exposure.

As of the latest data, ESML manages approximately $1.96 billion in assets under management (AUM), making it a mid-sized ETF in the small-cap space. Its expense ratio and trading volume are important considerations for investors evaluating its liquidity and cost efficiency. The fund trades on the BATS exchange, which is known for its competitive pricing and efficient execution.