Is iShares Paris-Aligned Climate MSCI USA ETF (PABU) a Strong ETF Right Now?

The iShares Paris-Aligned Climate MSCI USA ETF (PABU) made its debut on 04/08/2022, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - All Cap Blend category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is sponsored by Blackrock. It has amassed assets over $2.12 billion, making it one of the larger ETFs in the Style Box - All Cap Blend. Before fees and expenses, this particular fund seeks to match the performance of the MSCI USA CLMT PARIS ALGN BNC EXT SLCT ID.

The MSCI USA Climate Paris Aligned Benchmark Extended Select Index composed of U.S. large & mid-capitalization stocks designed to be compatible with the objectives of the Paris Agreement by following a decarbonization trajectory, reducing exposure to climate-related transition & physical risks & increasing exposure to companies favourably positioned for the transition to a low-carbon economy.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Operating expenses on an annual basis are 0.10% for PABU, making it one of the least expensive products in the space.

PABU's 12-month trailing dividend yield is 0.97%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

PABU's heaviest allocation is in the Information Technology sector, which is about 37.80% of the portfolio. Its Financials and Consumer Discretionary round out the top three.

Taking into account individual holdings, Apple Inc (AAPL) accounts for about 7.27% of the fund's total assets, followed by Nvidia Corp (NVDA) and Microsoft Corp (MSFT).

PABU's top 10 holdings account for about 39.56% of its total assets under management.

Performance and Risk

The ETF has lost about -0.42% so far this year and is up about 13.72% in the last one year (as of 05/19/2025). In the past 52-week period, it has traded between $53.19 and $67.53.

The ETF has a beta of 1.04 and standard deviation of 19.31% for the trailing three-year period. With about 208 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares Paris-Aligned Climate MSCI USA ETF is a reasonable option for investors seeking to outperform the Style Box - All Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard ESG U.S. Stock ETF (ESGV) tracks FTSE US ALL CAP CHOICE INDEX and the iShares ESG Aware MSCI USA ETF (ESGU) tracks MSCI USA ESG Focus Index. Vanguard ESG U.S. Stock ETF has $10.20 billion in assets, iShares ESG Aware MSCI USA ETF has $13.36 billion. ESGV has an expense ratio of 0.09% and ESGU charges 0.15%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - All Cap Blend.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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This article originally published on Zacks Investment Research (zacks.com).

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