The Biggest ETF Launch Ever Is Just a $2 Billion ESG Fund Reshuffle

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(Bloomberg) — The largest ETF launch of all time has just taken place in the US. Unfortunately, it was less dramatic or exciting than it sounds. 

The record-breaking fund is the Xtrackers MSCI USA Climate Action Equity ETF (ticker USCA), which debuted Tuesday with $2 billion in assets — leapfrogging the $1.35 billion launch of the Goldman Sachs MarketBeta US 1000 Equity ETF (GUSA) to take the top spot.

But far from laying a new marker for the popularity of the ETF industry or investments that meet higher environmental, social or governance standards, it was merely a reshuffle. The cash, provided by Finnish pension giant Keskinainen Elakevakuutusyhtio Ilmarinen, was simply moved from the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG), which duly recorded a matching $2 billion outflow Tuesday — a record for the fund.

Amanda Rebello, head of Xtrackers sales, US Onshore at DWS Group, said the new fund is more targeted to investors’ climate goals.

“There’s much more urgency on this climate angle in particular than on broader based ESG,” Rebello said in an interview. “This time the thinking was to put dollars to work and help with the solution.”

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

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

It also will save the firm some cash. While USSG is cheap 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 US, new funds regularly face a battle for assets and many fail when they struggle to attract investors. By launching with the huge commitment from Ilmarinen, USCA’s survival is assured, but there’s no guarantee it will lure further cash.

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The BlackRock U.S. Carbon Transition Readiness ETF (LCTU) boasted the largest-ever ETF launch when it debuted in 2021. Since then, it rarely sees big flows in or out. It has added less than $100 million of net new cash in the past year.

“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 James Seyffart, an ETF analyst at Bloomberg Intelligence. He added that the ease with which the switch took place shows “the efficiency and nimbleness of the ETF structure and the creation/redemption process.”

–With assistance from Isabelle Lee.

https://www.wealthmanagement.com/etfs/biggest-etf-launch-ever-just-2-billion-esg-fund-reshuffle

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