BlackRock has expanded its US-listed suite of thematic equity ETFs with a new fund aimed at addressing water scarcity.
The ETF offers a relatively unexplored approach to the water scarcity theme.
The iShares MSCI Water Management Multisector ETF (IWTR US) has been listed on Nasdaq with an expense ratio of 0.47%.
IWTR takes a somewhat unique approach to the water scarcity theme in that it focuses not only on companies operating within water-related industries but also includes an allocation to firms from across the economy that are effectively managing their water consumption.
This relatively unexplored methodology sets the fund apart from existing ETFs in the space such as the $830 million Invesco S&P Global Water Index ETF (CGW US), the largest dedicated water ETF in the US. IWTR is also cheaper than CGW which has an expense ratio of 0.57%.
Methodology
The fund is linked to the MSCI ACWI IMI Sustainable Water Transition Extended Capped Index which selects its constituents from an initial broad universe of large and mid-cap stocks from both developed and emerging market countries.
The methodology first conducts several ESG-related screens including removing companies embroiled in environmental controversies, firms with business operations linked to controversial industries, and entities that are deemed to be having a negative effect on UN Sustainable Development Goals related to clean water & sanitation or life below water.
MSCI then identifies index constituents according to two separate categories: a ‘Circular Technologies’ universe and a ‘Circular Transition’ universe.
The Circular Technologies category consists of companies with at least 25% revenue exposure to sustainable water activities such as water supply, water utilities, water treatment, and water-related equipment.
The Circular Transition category consists of companies outside of the Circular Technologies universe that score in the top 5% based on sector-adjusted water management scores.
Each category receives an equal 50% weight, and constituents within each category are weighted by float-adjusted market capitalization.
As of 27 September, over half (57.5%) of the index weight was allocated to stocks from the US with the next-largest country exposures being the UK (11.2%), Taiwan (6.9%), Switzerland (4.8%), and France (4.4%).
Stocks from the industrials, consumer staples, and utilities sectors dominated, each representing between 20% and 25% of the total index weight. Information technology (15.3%) and materials (8.1%) made up the next-largest sector exposures.
Notable positions included Xylem (7.3%), Coca Cola (7.1%), Texas Instruments (6.6%), American Water Works (6.5%), Diageo (6.5%), Ecolab (6.3%), Taiwan Semiconductor (6.1%), and General Mills (4.9%).