There’s one distinct factor that makes Charles Schwab’s foray into environmental, social and governance investing stand out from the pack, says the firm’s head of strategy and product, David Botset.
“Many of the ESG offerings on the market today are focused on large-cap companies, and many of them have a tilt towards growth-oriented companies,” Botset told CNBC’s “ETF Edge” on Monday.
“What we’ve designed here with Ariel and the investment philosophy provides investors small and mid-cap exposure with a little bit more of a value tilt to help really put together a well-rounded ESG portfolio,” he said. “
Launched one week ago on the New York Stock Exchange, the Schwab Ariel ESG ETF (SAEF) is the firm’s first ESG ETF and first actively managed ETF. It has a semi-transparent structure, which means it is not obligated to disclose its holdings on a daily basis.
Schwab’s longtime affiliate-turned-product-partner Ariel, a nearly $20 billion asset manager and one of the world’s oldest minority-owned investment firms, rates the ETF’s potential holdings according to its proprietary ESG research.
It also screens negatively for companies deriving revenue mainly “from the production or sale of tobacco products, the exploration for or the extraction of fossil fuels, the operation of private prisons or jails, and the manufacture of firearms, personal weapons, small arms, or controversial military weapons,” according to a press release.
“Small and mid-cap ESG strategies are really hard to come by, so we think it really serves a really strong point in investors’ portfolios combined with many of the more traditional large-cap, growth-oriented ESG strategies that are in the marketplace today,” Botset said.
The availability of more options in the ESG space should benefit the individual investor, ETF Trends CEO Tom Lydon said.
“There’s so many choices and all the management companies and index providers look at this in so many different ways, which is good for the average investor,” he said in the same interview.
“You look at the unique approach that Ariel brings and the fact that they’ve been at this for decades. There are a lot of companies that can’t say the same.”
Still, it will always pay off to be cautious, Lydon said.
“It does require more research for the average investor and most importantly the average advisor, because the average advisor’s client out there is expecting — not just requesting, but expecting — some type of ESG overlay and that might come in a lot of different shapes, sizes and colors,” the CEO said. “That’s going to be really important going forward.”