The iShares ESG MSCI KLD 400 ETF (DSI) seeks to track the MSCI KLD 400 Social Index, which measures the performance of 400 U.S. companies that meet environmental, social, and governance (ESG) criteria while excluding businesses involved in controversial activities like tobacco, weapons, and gambling.
How It Works
DSI uses a passively managed, market-capitalization-weighted approach that mirrors its benchmark index. The fund holds approximately 400 U.S. stocks selected through MSCI's ESG screening process, which evaluates companies on sustainability practices, corporate governance, and social responsibility metrics. Holdings are weighted by market value and rebalanced quarterly to maintain alignment with index changes, providing diversified exposure across sectors while maintaining ESG standards.
Key Features
- Tracks one of the oldest ESG indices, established in 1990, providing time-tested sustainability screening methodology
- Excludes entire industries like tobacco, alcohol, gambling, and weapons manufacturing rather than just underweighting them
- Covers approximately 25% of U.S. market capitalization while maintaining sector diversification similar to broader market
Risks
- This ETF can underperform broader market indices when excluded sectors like energy or tobacco outperform significantly
- ESG screening reduces investment universe to 400 stocks, creating concentration risk compared to total market exposure
- Value-oriented sectors often excluded by ESG criteria may cause prolonged underperformance during value market cycles
Who Should Own This
Best suited for values-driven investors with 5+ year time horizons seeking core U.S. equity exposure (20-40% of equity allocation) while maintaining ESG principles. Medium risk tolerance required due to equity volatility and potential tracking differences versus broad market indices. Ideal for socially conscious retirement account investing.