Stockholm (NordSIP) – State Street Global Advisors (SSGA) launched a new sustainability-themed ETF. The SPDR STOXX Europe 600 ESG Screened UCITS ETF invests in a subset of companies from the STOXX Europe 600, which are selected by the application of exclusion criteria. The fund will be listed on Xetra (ZPDX: GY), Borsa Italiana (600X: IM) and Euronext (600X: NA).
This is reportedly the first fund to provide exposure to the STOXX 600 ESG-X index, which was launched in 2018. The index includes both large and medium-capitalization and small-capitalization companies across 17 European countries and is constructed with ESG data from Sustainalytics.The ETF filters investments in controversial weapons, tobacco and coal, as well as in companies that are not committed to the ten principles of the UN Global Compact. The remaining constituents are then weighted by free-float-adjusted market capitalization subject to an individual security cap of 20%.
”Sustainable investment is no longer a niche, but one of the biggest growth areas of European ETF development, and the supply of sustainable ETFs is rapidly evolving in response to growing investor demand,” said Rebecca Chesworth, Senior Equity Strategist, SPDR. ”Against this background, we continue to see growth potential in the demand for sustainable ETFs. Although nearly US$ 90 billion in global fixed income has been committed to United Nations Principles for Corporate Governance (PRI) and hence sustainability considerations in their investment decisions, only an estimated 20% of these assets are actually invested in sustainability terms. However, this is likely to change rapidly as the requirements for the PRI’s signatories, including the disclosure of climate risks, worsen from 2020 onwards.”
One of the most interesting features of the fund is that it includes a “fast exit” feature that allows the index to react to breaking ESG controversies. If a stock’s Sustainalytics controversy risk rating is raised to level 5, it will be removed from the index within two working days after. Otherwise, the fund is reviewed and its component investments are rebalanced on a quarterly basis.
A total of 19 stocks are currently excluded from the parent STOXX Europe 600 universe. The largest of these are Novartis, British American Tobacco, Airbus, Safran, Volkswagen benefits, Imperial Brands,BAE Systems, Rolls Royce Holdings, RWE and Atlantia.
”As fund performance adapts to new opportunities and demand, the supply of ETFs is likely to widen, with the number of sustainable ETFs end of January 2019,” adds Mandy Chiu, Head of ETF Product for the EMEA and APAC regions. ”With more and more scientific studies showing a positive correlation between high ESG scores and performance, we expect the number of sustainable ETFs to increase as Europe continues to lead the way in sustainable investment.”
The resulting equity portfolio in the new SPDR ETF has low tracking error (annualized 0.48% over the last five years) and similar performance characteristics to the STOXX Europe 600 Index. The active weighting by sector is below 2% (the sector with the strongest active positioning is health care at -1.68%, followed by finance with + 1.32%). The fund’s total expense ratio (TER) is 0.12% and its annualized tracking error is just 0.48%.
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