This month, Schwab Asset Management, the asset management arm of The Charles Schwab Corporation, announced the launch of the Schwab Ariel ESG ETF (SAEF), an active, semi-transparent (also known as non-transparent) ETF that invests in small- and mid-cap stocks that have been screened based on environmental, social, and governance (ESG) factors. Today is expected to be the first day of trading.
The new ETF will be sub-advised by Ariel Investments, LLC (“Ariel”). Ariel, the first African American-owned investment firm in the U.S., brings nearly 40 years of experience integrating ESG factors into every phase of its investment process.
“Schwab is focused on empowering clients, and we know that investing in line with one’s values is increasingly important to many investors,” said Rick Wurster, president of The Charles Schwab Corporation. “We are very excited to introduce the Schwab Ariel ESG ETF in collaboration with Ariel. Together, we believe our unparalleled ETF and ESG capabilities can help investors achieve their financial goals.”
The Schwab Ariel ESG ETF will provide investors with access to the proprietary ESG investment process pioneered by Ariel. The fund seeks to deliver long-term capital appreciation by leveraging Ariel’s value-based investment process, which is focused on small- and mid-cap U.S. companies with favorable ESG characteristics as measured by Ariel’s ESG risk rating process.
The Schwab Ariel ESG ETF can serve as a core or complementary equity ESG allocation within a portfolio. The fund has an operating expense ratio (OER) of 59 bps.
“We are delighted to expand our long-standing relationship with Schwab and bring our value-based, high conviction ESG approach to the market in this new ETF,” said John W. Rogers, Jr., founder, chairman, co-CEO, and CIO of Ariel Investments. “ESG has influenced how Ariel invests and engages since our founding in 1983. We believe in a more rigorous and thoughtful approach to ESG investing that uses proprietary analysis to gain a nuanced view of ESG risk instead of relying solely on third-party rating systems. As long-term investors, we are driven by dialogue, not dictates. As a firm, we consistently engage with portfolio company management teams to address ESG issues deemed material to their financial health.”
A Schwab / Ariel Collaboration
The Schwab Ariel ESG ETF offers active management in a semi-transparent ETF. Ariel’s focus on value and small- and mid-cap equity securities differentiates the new ETF from most ESG strategies, which tend to skew toward growth and large-cap securities. Ariel will leverage its proprietary ESG research to derive a proprietary ESG-risk rating for each holding, or prospective holding, in the fund.
In addition, Ariel will employ a negative screening process in the fund’s security selection, which seeks to exclude from the fund companies whose primary source of revenue is derived 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.
“At Schwab, we deliver investment choices, resources, and education,” said Malik Sievers, head of ESG strategy at Schwab Asset Management. “Our first proprietary ESG fund addresses a clear gap in the market for a small- to mid-cap ESG fund managed through a value investing lens. We are excited to bring investors a new option for incorporating ESG into their portfolios and which may help them to tailor their exposure to ESG investing based on their goals and preferences.”
The fifth-largest provider of ETFs, Schwab Asset Management has more than a decade of experience managing ETFs and a robust capital markets team that plays a crucial role in ensuring that Schwab ETFs function efficiently. Schwab’s holistic approach to ESG includes educational resources and broad access to third-party ESG products, in addition to this new proprietary offering. Ariel brings a distinctive, actively managed, bottom-up investment approach aimed at driving long-term results for investors. Its tailored approach recognizes ESG issues as material to business outcomes and views management teams as collaborative partners in strengthening ESG performance. The Schwab Ariel ESG ETF will have two co-lead portfolio managers, John W. Rogers, Jr. and Kenneth Kuhrt, who are supported by Ariel’s dedicated ESG team.
Schwab and Ariel Investments have a long-standing relationship and have collaborated for over 20 years on the “Ariel-Schwab Black Investor Survey”:https://www.aboutschwab.com/ariel-schwab-black-investor-survey-2021, a body of research that explores the similarities and differences between Black and white Americans when it comes to saving, investing, and other financial priorities.
For more information, review the prospectus here.
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