Paris-headquartered asset manager Amundi has announced changes to the indices underlying its range of socially responsible investment (SRI) equity ETFs.

The indices harness data from MSCI ESG Research to provide SRI-focused exposure to broad market benchmarks.

The changes come in response to feedback from clients and are being undertaken to enhance diversification at the stock-specific level.

The ETFs currently track top-level MSCI SRI indices but, as of 28 August, will begin to track 5% issuer capped versions of the indices.

With the existing indices, certain mega-cap companies can end up with oversized positions as a result of company exclusions and a weighting scheme that tilts towards ESG poster boys

Companies commanding outsized weights currently include firms such as software colossus Microsoft, pharmaceuticals giant Roche, and semiconductor devices giant Taiwan Semiconductor.

The new capped indices aim to reduce this sort of idiosyncratic exposure by limiting constituent weights at 5%.

ESG methodology

The range, which consists of four funds targetting global developed, US, European, and emerging market equity universes, harnesses data from MSCI’s in-house ESG research division to provide responsible exposure.

The underlying indices first exclude companies involved in nuclear power, tobacco, alcohol, gambling, military weapons, civilian firearms, GMOs, and adult entertainment. The remaining constituents are then assigned an ESG rating which indicates its ability to deal with ESG risks relative to sector peers. Firms with ratings below average are excluded.

The process then seeks to form a best-in-class index with risk characteristics that are similar to the parent universe. It does this by selecting companies from each sector with the highest ESG ratings that make up approximately 25% of the total market capitalization of that sector. Stocks are weighted by free float-adjusted market capitalization, subject to the new 5% cap.

The funds

The range has generated notable interest from investors since debuting in November 2018, having grown its collective AUM to approximately €345 million. Amundi will be hoping the new indices boost demand by making the funds (outlined below) more appealing to a wider audience.

The Amundi Index MSCI World SRI UCITS ETF (WSRI FP) will track the MSCI World SRI 5% Issuer Capped Index. The new index caps exposure to Microsoft which accounts for a 9.3% weight in the current non-capped index. The fund has €106m AUM and comes with a total expense ratio (TER) of 0.18%.

The Amundi Index MSCI USA SRI UCITS ETF (USRI FP) will track the MSCI USA SRI 5% Issuer Capped Index. Here too the new index caps exposure to Microsoft which currently accounts for a 15.6% weight in the non-capped index. The fund has €66m AUM and also comes with a TER of 0.18%.

The Amundi Index MSCI Europe SRI UCITS ETF (EUSRI FP) will track the MSCI Europe SRI 5% Issuer Capped Index. The new index caps exposure to Roche which accounts for a 7.9% weight in the current non-capped index. The fund has €129m AUM and also comes with a TER of 0.18%.

The Amundi Index MSCI Emerging Markets SRI UCITS ETF (EMSRI FP) will track the MSCI Emerging Markets SRI 5% Issuer Capped Index. The new index caps exposure to Taiwan Semiconductor which accounts for a 16.5% weight in the current non-capped index. The fund has €44m AUM and comes with a TER of 0.25%.