The iShares ESG Aware MSCI USA Growth ETF (EGUS) seeks to track the MSCI USA Growth Extended ESG Focus Index, which measures the performance of large- and mid-cap U.S. growth stocks while applying environmental, social, and governance (ESG) screening criteria to exclude controversial business activities.
How It Works
EGUS uses a passively managed, market-capitalization-weighted approach that first identifies growth stocks based on metrics like earnings growth, sales growth, and forward price-to-earnings ratios. The fund then applies ESG screens to exclude companies involved in controversial weapons, tobacco, thermal coal, and oil sands, while overweighting firms with higher ESG ratings. Rebalancing occurs quarterly to maintain index alignment and ESG compliance.
Key Features
- Combines growth investing with ESG screening, excluding controversial sectors while maintaining exposure to high-growth technology and healthcare companies
- Recently launched in February 2023, offering investors a newer approach to sustainable growth investing with competitive expense structure
- Focuses on large- and mid-cap growth stocks, providing concentrated exposure to companies with above-average earnings and revenue expansion
Risks
- This ETF can lose value significantly during growth stock selloffs, as seen in 2022 when growth stocks declined 25-30% while value outperformed
- ESG screening reduces diversification by excluding entire sectors like energy and tobacco, potentially missing profitable opportunities during commodity cycles
- Growth stocks typically underperform during rising interest rate environments, as higher rates reduce the present value of future earnings growth
Who Should Own This
Best suited as a satellite holding (10-25% of equity allocation) for ESG-conscious investors with 3+ year time horizons seeking U.S. growth exposure. Requires medium-to-high risk tolerance due to growth stock volatility. Ideal for younger investors building sustainable portfolios or those wanting growth exposure without controversial sectors.