Some companies are inherently well-positioned for a more sustainable future. BlackRock is focusing on those operations with two new ETFs, deemed Carbon Transition Readiness ETFs.
One focuses on companies within the U.S., while the other keeps a global perspective. Both of the ETFs are massive in scope. How are these ETFs positioned in the short and long term? How will they impact an investor's portfolio?
New ETFs are part of BlackRock's broader mission.
A few years ago, BlackRock (NYSE: BLK) made a promise that it would double its offerings of sustainable ETFs for a total of 150 by the end of 2021. The company has been ramping up its efforts. The Carbon Readiness ETFs are the latest players to contribute to the goal. BlackRock stated that this would include "sustainable versions of flagship index products, so that clients have more choice for how to invest their money."
By increasing access to sustainable investing in various niches, BlackRock is contributing to a greater mission focused on ESG-compliant (relating to environmental, social, and governance regulations) investments.
BlackRock U.S. Carbon Readiness ETF (LCTU) details
LCTU is actively managed and holds an expense ratio of 0.3 percent (which is pretty consistent with the market). The fund grants diverse exposure to large and mid-cap U.S. companies, "tilting towards those that BlackRock believes are better positioned to benefit from the transition to a low-carbon economy" according to iShares.
Ultimately, the fund's goal is long-term capital appreciation. So, investors should keep this in mind before taking a bite. Listed on the NYSE Arca, the fund uses the Russell 1000 as a benchmark index.
LCTU was so popular on its April 12 launch that it became the biggest debut in ETF history (the first ETF came in 1993). The share prices are relatively stable. Strong retail and institutional investor interest is a good sign for this fledgling fund.
Varma, a major company in Finland's pension business, invested in the U.S. ETF to the tune of about $240 million.
BlackRock World Carbon Readiness ETF (LCTD) details
For non-U.S. companies, BlackRock created a global version of the Carbon Readiness ETF. Based on the geographical diversity, the expense ratio is a bit higher at 0.35 percent. LCTD is listed on the same exchange, but its trading volume isn't quite where the U.S. variant is at.
LCTD's top holdings include Nestle (SWX:NESN) with a 2.07 percent weight, Toyota (TYO:7203), and Siemens Healthineers AG (ETR:SHL) with a 0.83 percent weight.
Not impact investing—value investing with a sustainable twist
Impact investing means providing companies with capital that you hope can both give you healthy returns and make a difference in how the companies function. In contrast, value investing looks for opportunities where others might not see them. BlackRock is focusing on the latter. These Carbon Readiness ETFs are made up of companies that just so happen to be suited for a more sustainable future.