BNP Paribas has introduced a new ETF providing socially responsible exposure to Chinese equities across all major share types.
UBS and KraneShares also offer socially responsible Chinese equity ETFs in Europe.
The BNP Paribas Easy MSCI China Select SRI S-Series 10% Capped UCITS ETF has been listed on Xetra and Euronext Paris and is available in euro (9W1 GY / CHINE FP) and US dollar (9W1A GY / CHINA FP) share classes.
It is linked to the MSCI China Select SRI S-Series 10% Capped Index which selects its constituents from the parent MSCI China Index universe.
The parent index represents the performance of large- and mid-cap Chinese A shares, H shares, B shares, Red chips, P chips, and foreign listings such as ADRs.
The index construction methodology first conducts several values-based screens which remove firms that are UN Global Compact violators, firms with any business activity linked to controversial weapons, nuclear weapons, civilian firearms, tobacco, alcohol, adult entertainment, gambling, GMOs, or nuclear power, and firms that derive significant revenue from fossil fuels.
The remaining constituents are then assigned MSCI ESG ratings which indicate their ability to deal with ESG risks relative to sector peers. Firms with ratings below ‘BB’ (lower-average) are also 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 a 10% cap per stock and a cap of 40% on the sum of all stocks with weights above 5%.
The resultant index currently has 90 constituents compared to more than 700 in the parent universe.
By design, it maintains a similar sector profile compared to the parent universe with stocks from the consumer discretionary (35.6%), financials (16.9%), information technology (8.8%), health care (8.8%), and communication services (8.6%) making up the largest weights.
The index is, however, notably more concentrated at the stock level with the top ten positions accounting for a cumulative weight of 62.5% – the largest stocks include Meituan (11.1%), China Construction Bank (8.6%), Tencent Holdings (8.6%), Ping An Insurance (8.2%), NIO (6.9%), Wuxi Biologics (5.8%), Yum China (4.0%).
The index is reviewed on a quarterly basis.
The ETF comes with an expense ratio of 0.45%. Income is accumulated.
The fund will compete with two other socially responsible Chinese equity ETFs available in Europe, both of which are also based on the MSCI China Index universe.
The $140m UBS ETF (LU) MSCI China ESG Universal UCITS ETF (CNSG LN) is linked to the MSCI China ESG Universal Index and has an expense ratio of 0.65%, while the $30m KraneShares MSCI China ESG Leaders UCITS ETF (KESG LN) tracks the MSCI China ESG Leaders 10/40 Index and costs 0.40%.