Largest ETF launch ever is merely a 2 billion reorganisation of ESG funds
The largest ETF launch in history has just occurred in the United States. Unfortunately, it was not as thrilling or dramatic as it sounds.
The record-breaking fund is the Xtrackers MSCI USA Climate Action Equity ETF (symbol USCA), which debuted on Tuesday with $2 billion in assets, surpassing the 1.35 billion launch of the Goldman Sachs MarketBeta US 1000 Equity ETF (GUSA).
But rather than establishing a new benchmark for the ETF industry or investments that meet higher environmental, social, or governance standards, this was merely a reorganisation. The cash, provided by Finnish pension giant Keskinainen Elakevakuutusyhtio Ilmarinen, was merely transferred from the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG), which consequently posted a record-setting 2 billion outflow on Tuesday.
Amanda Rebello, director of Xtrackers sales, US Onshore at DWS Group, stated that the new fund is more tailored to investors’ environmental objectives.
Rebello stated in an interview, “There is a great deal more urgency surrounding this climate angle than the broader ESG.” This time, the plan was to put money to work and contribute to the solution.
Nonetheless, some may dispute the magnitude of the shift’s effects. Seven companies, including Microsoft Corp. and Alphabet Inc., appear in the top 10 holdings of both funds, according to a review of their holdings.
Senior portfolio manager at Helsinki-based Ilmarinen Juha Venalainen wrote in an email, “The change was made in order to participate more effectively in the climate megatrend.” Over time, the change should bring us closer to our objective of carbon neutrality by the end of 2035.
It will also save the company money. While USSG’s expense ratio of 0.1% is low, USCA’s expense ratio of 0.07% is even lower.
With more than 3,000 ETFs currently trading in the United States, many new funds fail due to their inability to attract investors. By commencing with Ilmarinen’s massive investment, USCA’s survival is assured, but there is no assurance it will attract additional funding.
In 2021, the BlackRock U.S. Carbon Transition Readiness ETF (LCTU) had the largest ETF launch in history. Since then, it rarely experiences large in- or outflows. In the past year, it has added less than 100 million in net new capital.
“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 from one ETF and put 2 billion into another brand new ETF without market impact,” said ETF analyst James Seyffart of Bloomberg Intelligence. The ease with which the switch occurred demonstrates “the efficiency and agility of the ETF structure and the creation/redemption process,” he added.
