DWS climate-transition ETF gets $2 billion from Finnish investor on first trading day

DWS Group on Wednesday announced the listing of a climate transition-related exchange-traded fund that it said had received a roughly $2 billion investment from Ilmarinen, Finland's largest private earnings-related pension insurance company, on the ETF's first trading day, making it the largest ETF launch in the U.S.

"And I would go as far as saying it's the largest (ETF) launch ever globally, simply because the U.S. market is the largest market, and we're not aware of a larger launch globally," said Arne Noack, head of systematic investment solutions, Americas, at DWS, in an interview.

The Xtrackers MSCI USA Climate Action Equity ETF is designed for investors looking for exposure to large and midcap companies in the U. S. that are "leading their sector peers in taking actions relating to climate transition," DWS said in a news release.

The roughly $2 billion investment by Ilmarinen is part of the Finnish pension insurance company's investment strategy that is aligned with its goal of achieving a carbon-neutral portfolio by the end of 2035, the news release said.

The money that Ilmarinen invested in the new ETF had previously been invested in another Xtrackers ETF, which Ilmarinen had helped to start in 2019, Mr. Noack said. The older fund, the Xtrackers MSCI USA ESG Leaders Equity ETF, had about $3.25 billion in assets under management as of Tuesday, prior to the new fund's launch.

The older fund has a broader ESG mandate, Mr. Noack said, adding that Ilmarinen and other investors are "sharpening the pencil a little bit" when it comes to their ESG focus.

"Climate tends to be the one issue that people hone in on, and this launch is an expression of that," he said.

The new ETF tracks the MSCI USA Climate Action index, Mr. Noack said, adding that DWS participated in a request-for-proposal process conducted by Ilmarinen, which eventually led to launch of the new fund.

"It was a very transparent process where we had to compete in a healthy way with other ETF issuers," he said.

Todd Rosenbluth, head of research at VettaFi, a data and analytics provider, said while there might be a narrative in the U.S. that demand for environmentally friendly ETFs has diminished, the new U.S.-listed DWS ETF appears to be a sign that such is not the case.

"Even if this is money moving from one fund to another, this is still money staying within the broader ESG realm," Mr. Rosenbluth said.

Hitting the $2 billion milestone on "day one" opens the door for the new ETF to continue to attract institutional interest, he said.

"Institutions want to make sure that there is sufficient liquidity and that the fund is likely to persist," Mr. Rosenbluth said. "And so, I think this is favorable towards potentially more (institutional) investors coming on board."

DWS Group had €821 billion ($876.4 billion) in assets under management as of Dec. 31.