Growing Risk Appetite Brings New EM ESG ETF

    Stockholm (NordSIP) – As the market’s appetite for risk continues to improve in light of the continued economic recovery following the mass vaccination of the world’s population, investors have started displaying increasing interest in emerging markets.

    At the start of July Invesco launched the Invesco MSCI Emerging Markets ESG Universal Screened UCITS ETF to answer this call.“Flows into emerging market ETFs during the first half of the year were broadly equal to those into Europe and trailed only those into global and US equities,” explains Chris Mellor, Head of EMEA ETF Equity and Commodity Product Management at Invesco. “At the same time, we see that 44% of all net flows have been going into ESG products, with more than $1.2 billion into our range of MSCI ESG Universal Screened ETFs. We believe these trends could continue as many emerging markets are well-positioned economically as the world comes out of the pandemic and as investors appreciate the potential benefits that ESG strategies can offer their portfolios.”

    Invesco’s new ETF tracks an index constructed from the parent MSCI Emerging Markets index. It covers large- and mid-cap stocks across 26 countries and excludes companies involved in controversial, conventional or nuclear weapons, civilian firearms, oil sands, thermal coal, tobacco or recreational cannabis. Companies involved in severe controversies over ESG issues in the past three years or with a very low MSCI ESG score are also excluded from the index. The index then reweights the remaining stock by the product of their ESG scores, ESG trend scores and market capitalisation. Issuer weights are capped at 5% to reduce concentration risk.

    “When we speak to investors about what is most important to them when selecting responsibly invested funds, performance and engagement are normally at the top of their list,” says Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco. “We can satisfy these demands with passive ETFs by choosing the right benchmark and having the people and systems in place to track it closely, and by following a robust engagement process. We vote the shares held by our passive ETFs in line with the largest active holder of those shares within the Invesco group. That combined vote can give us a much bigger voice on key ESG decisions.”

    Image by Dean Moriarty from Pixabay

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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