Investment advisor: BlackRock Fund Advisors
Launch date: November 14, 2006
Expense ratio: 0.25%
Investment objective:
The iShares MSCI KLD 400 Social ETF (the “Fund”) seeks to track the investment results of an index composed of U.S. companies that have positive environmental, social and governance characteristics as identified by the index provider.
Fundamental investment strategy:
The Fund seeks to track the investment results of the MSCI KLD 400 Social Index (the “Underlying Index”), which is a free float-adjusted market capitalization index designed to provide exposure to U.S. companies that have positive environmental, social and governance (“ESG”) characteristics. As of April 30, 2022, the Underlying Index consisted of 400 securities identified by MSCI Inc. (the “Index Provider” or “MSCI”) from the universe of companies included in the MSCI USA IMI Index, which targets 99% of the market coverage of stocks that are listed for trading on the New York Stock Exchange (“NYSE”) and the Nasdaq Stock Market.
The Underlying Index includes large-, mid- and small-capitalization companies and may change over time.
As of April 30, 2022, a significant portion of the Underlying Index is represented by securities of companies in the technology industry or sector. The components of the Underlying Index are likely to change over time.
BFA uses a “passive” or indexing approach to try to achieve the Fund’s investment objective. Unlike many investment companies, the Fund does not try to “beat” the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued.
Indexing may eliminate the chance that the Fund will substantially outperform the Underlying Index but also may reduce some of the risks of active management, such as poor security selection. Indexing seeks to achieve lower costs and better after-tax performance by aiming to keep portfolio turnover low in comparison to actively managed investment companies.
BFA uses a representative sampling indexing strategy to manage the Fund. “Representative sampling” is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to that of an applicable underlying index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of an applicable underlying index. The Fund may or may not hold all of the securities in the Underlying Index.
The Fund generally invests at least 90% of its assets in securities of the Underlying Index and in depositary receipts representing securities of the Underlying Index. The Fund may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents, including shares of money market funds advised by BFA or its affiliates, as well as in securities not included in the Underlying Index, but which BFA believes will help the Fund track the Underlying Index. Cash and cash equivalent investments associated with a derivative position will be treated as part of that position for the purposes of calculating the percentage of investments included in the Underlying Index. The Fund seeks to track the investment results of the Underlying Index before fees and expenses of the Fund.
The Fund may lend securities representing up to one-third of the value of the Fund’s total assets (including the value of any collateral received).
The Underlying Index is sponsored by MSCI, which is independent of the Fund and BFA. The Index Provider determines the composition and relative weightings of the securities in the Underlying Index and publishes information regarding the market value of the Underlying Index.
Industry Concentration Policy. The Fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to approximately the same extent that the Underlying Index is concentrated. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities) and repurchase agreements collateralized by U.S. government securities are not considered to be issued by members of any industry.
Sustainable investing approach:
MSCI analyzes each eligible company’s ESG performance using proprietary ratings covering ESG criteria. When selecting companies for the Underlying Index, MSCI also considers market capitalization and liquidity. Companies that MSCI determines have significant involvement in the following businesses are not eligible for the Underlying Index: fossil fuel extraction, fossil fuel reserve ownership, unconventional oil and gas extraction, thermal coal-based power generation, alcohol, tobacco, gambling, civilian firearms, nuclear power, controversial weapons, nuclear weapons, conventional weapons, adult entertainment and genetically modified organisms.
Additional sustainable investing approach information:
Component Selection Criteria and Index Description. The MSCI KLD 400 Social Index is a free float-adjusted market
capitalization weighted index designed to provide exposure to U.S. companies that have positive environmental, social and
governance (“ESG”) characteristics. As of April 30, 2022, the Underlying Index consisted of 400 securities identified by MSCI
from the universe of companies included in the MSCI USA IMI Index, which consists of the largest NYSE and NASDAQ listed
U.S. equities ranked by investable market capitalization (after the application of any investability weightings). MSCI analyzes
each eligible company’s ESG performance using proprietary ratings covering environmental, social, and governance criteria.
MSCI seeks to include in the Underlying Index companies with high ESG ratings relative to their sector peers and in relation
to the broader market. When selecting companies for the Underlying Index, MSCI also considers market capitalization and
liquidity. Companies that MSCI determines have significant involvement in the following businesses are not eligible for the
Underlying Index: fossil fuel extraction, fossil fuel reserve ownership, thermal coal mining, unconventional oil and gas
extraction, thermal coal -based power generation, alcohol, tobacco, gambling, civilian firearms, nuclear power, controversial
weapons, nuclear weapons, conventional weapons, adult entertainment and genetically modified organisms.
Index Maintenance. The composition of the Underlying Index is reviewed on a quarterly basis. Companies can be added to
the Underlying Index only at regular index reviews. Current index constituents are reviewed to determine if any should be
removed due to ESG performance. In addition, if a constituent is removed from the MSCI USA IMI Index as a result of the
index review, it will be simultaneously removed from the Underlying Index. The deleted companies are replaced with eligible
companies taking into account size-segment and sector representation. The Underlying Index will be restored to 400
companies at each index review.
Maintaining the Underlying Index includes monitoring and completing the adjustments for company additions and removals,
stock splits, stock dividends, float changes and stock price adjustments due to restructurings, spin-offs and other corporate
actions. New additions to the MSCI USA IMI Index due to corporate events will not be added simultaneously to the
Underlying Index, but will be considered for inclusion at the following index review. However, companies deleted from the
MSCI USA IMI Index between index reviews are also deleted at the same time from the Underlying Index.
When the number of securities in the Underlying Index falls below 400 due to corporate events, no additions will be made to
restore the number of constituents to 400 until the next quarterly index review.
Notes of Explanation: For mutual funds, expense ratio may vary by share class and launch date applies to the launch date of the earliest share class. Sources: Fund prospectus or other offering document, as disclosed.
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