BNP Paribas Easy has launched two new ETFs providing exposure to US-listed and emerging market equities with strong environmental, social, and corporate governance (ESG) characteristics. Constituent selection is based on data from MSCI ESG Research, the world’s largest provider of ESG ratings.
The funds provide exposure to US-listed and emerging markets equities with strong ESG characteristics.
The BNP Paribas Easy MSCI KLD 400 US SRI UCITS ETF (EKUS FP) tracks the MSCI KLD 400 Social Index, a capitalization-weighted index of 400 US securities that provides exposure to companies with outstanding ESG ratings.
The index is derived in two stages from the starting universe of the MSCI USA IMI – a broad index covering the large-, mid-, and small-cap segments of the US equity market. First, companies involved in nuclear power, tobacco, alcohol, gambling, military weapons, civilian firearms, GMOs and adult entertainment are excluded.
Secondly, the remaining constituents are evaluated according to MSCI’s ESG Intangible Value Assessment, which identifies companies that have demonstrated an ability to manage their ESG risks and opportunities. All companies rated ‘AAA’ are initially selected for inclusion. As the index is designed to maintain similar sector weights to the MSCI USA IMI, the methodology then selects a minimum of 200 large- and mid-cap constituents with the highest ESG ratings. It then selects the remaining constituents from any market cap segment, up to a total of 400, by picking firms with the highest ESG ratings, while ensuring the index’s sector weights do not deviate significantly from its parent index. Index rebalancing is carried out quarterly.
As of the end of October 2017, the largest sector weights in the index are information technology (29.8%), consumer discretionary (13.0%), healthcare (11.7%), financials (10.9%) and industrials (10.5%). The largest single constituents are Google (6.1%), Microsoft (6.0%) and Procter & Gamble (2.2%).
While the index has outperformed its parent thus far this year, returning 17.4% compared to 16.6% up to 31 October, it has slightly underperformed over the past ten years, returning 7.7% per annum (vs 7.8% p.a. for the MSCI USA IMI).
Source: MSCI.
The fund trades in US dollars and has a total expense ratio (TER) of 0.30%.
BNP Paribas’ second launch is the BNP Paribas Easy MSCI Emerging Markets SRI ETF (EISR FP) which tracks the MSCI Emerging Markets SRI Index and currently includes 183 high ESG scoring companies from across 24 emerging market countries. The index follows a similar process to the MSCI KLD 400 Social Index while utilizing constraints to ensure the final index does not differ significantly from the parent MSCI Emerging Markets Index.
The index’s largest country exposures are Taiwan (25.4%), South Korea (16.0%), India (13.0%), South Africa (10.0%) and Brazil (9.2%). The largest sector exposures are dominated by information technology (27.8%) and financials (27.0%), followed by consumer discretionary (10.0%), consumer staples (7.7%) and energy (6.7%).
Taiwan Semiconductor holds a whopping 17.3% weight in the index, well above the second largest constituent – Housing Development Finance Corp (3.5%).
While the index has returned an impressive 26.9% thus far this year, it has actually significantly underperformed its parent index which returned 32.6% over the same period. Over the past five years, however, it has outperformed, returning 6.6% per annum compared to 5.2% for the MSCI Emerging Markets Index.
Source: MSCI.
The fund trades in euros and has a TER of 0.45%.