BlackRock has expanded its range of Europe-listed sustainable exchange-traded funds with the launch of the iShares MSCI Japan SRI UCITS ETF (LON: SUJP), offering exposure to Japanese companies with the highest environmental, social and governance (ESG) ratings.
The iShares MSCI Japan SRI UCITS ETF currently tracks 63 Japanese equities whose firms have strong ESG credenetials, according to MSCI.
The US dollar-denominated fund tracks the Japan Socially Responsible Index, provided by MSCI. MSCI initially screens out firms involved in alcohol, tobacco, gambling, civilian firearms, military weapons, nuclear power, adult entertainment and genetically modified organisms. The index provider furthermore evaluates each remaining firm based on the most pertinent ESG themes specific to its sub-industry and assigns an ESG rating between AAA (highest) and CCC (lowest). Securities are only included in the index if they achieve a grading of A or above.
Index constituents are weighted by free-float market capitalization.
Tom Fekete, Global Head of iShares Product at BlackRock, commented: “We’re having many more conversations with investors looking for ways to embed a sustainable approach to investment into their portfolios. Whether the investor is a pension fund, insurance company, asset manager or wealth manager, we have built a set of ETFs that provide a values-based, cost efficient way to access different asset classes.”
“This fund launch is particularly timely given that investor sentiment towards Japan is strengthening. The combination of Bank of Japan’s commitment to their easing programme, positive corporate earnings helped by the weaker yen, and asset flows turning more positive is triggering some investors to build Japanese exposure into their portfolios.”
Christine Chardonnens, Executive Director, MSCI, added: “The MSCI SRI (Socially responsible investing) Indices aim to support investor ESG integration objectives, whether that’s using ESG data to enhance their investment decisions or to align their portfolios with their values. We are pleased that Blackrock has once again selected MSCI to round out their SRI ETF suite.”
The fund is physically-replicating, and has a total expense ratio (TER) of 0.30%.
As of 3 March 2017 the ETF has 63 constituents and significant exposure to the consumer discretionary (24.8%), industrials (17.3%), information technology (13.2%), telecommunications (10.8%) and materials (10.0%) sectors. The largest holdings include Honda (6.8%), KDDI (6.4%), Sony (5.4%), and NTT Docomo (4.4%).
iShares has previously launched a currency-hedged version of SUJP in May 2016 – the iShares Sustainable MSCI Japan SRI EUR Hedged UCITS ETF (SUSJ) trades on the London Stock Exchange in euros and sterling, and on Xetra in euros. Its TER is 0.35%.
The MSCI Japan Socially Responsible Index also underpins the UBS ETF – MSCI Japan Socially Responsible UCITS ETF (JPY) which was launched in August 2015. The fund trades in euros and does not apply currency hedging. It has a TER of 0.40%.
An increasing body of research is emerging that shows that by tilting towards companies exhibiting ESG strength, indices are better able to capture long-term sustainable returns by avoiding companies subject to social and environmental risks and favouring those which follow good management techniques.