German investment giant Deka has added a fixed income ETF to its line-up of climate-conscious socially responsible investment solutions.
Deka has introduced its first low-carbon ESG fixed income ETF.
The Deka MSCI EUR Corporates Climate Change ESG UCITS ETF (D6RA GY), which targets the euro-denominated corporate bond market, has been listed on Deutsche Börse Xetra.
Similar to Deka’s suite of five low-carbon ESG equity ETFs, which were unveiled in July 2020, the new listing is linked to an index from MSCI, namely the MSCI EUR Corporates IG Climate Change ESG Select Index.
The index selects its constituents from the parent MSCI EUR Corporates IG Select Index which consists of euro-denominated, fixed-rate bonds issued by companies domiciled in the eurozone, the UK, Norway, Sweden, Denmark, and Switzerland.
Eligible issues must be investment-grade rated, contain a par amount outstanding of at least €500 million, and have a remaining maturity between 18 months and ten years.
The methodology removes companies that are known violators of UN Global Compact principles, firms embroiled in severe ESG-related controversies, and those deriving significant revenue from business activities linked to nuclear power, armaments, controversial and nuclear weapons, tobacco, coal, and oil & gas.
The remaining constituents are assigned sustainability scores from MSCI ESG Research which reflect a company’s ESG performance relative to sector peers. Those with the worst ESG rating of ‘CCC’ are also excluded.
The issues in the remaining universe are then divided into 33 categories based on their remaining maturity and corresponding sector. The methodology targets a certain number of securities from each category, selecting those with the highest Low Carbon Transition (LCT) scores.
MSCI’s LCT scoring methodology is based on an analysis of each company’s current risk exposure and its efforts to manage the risks and opportunities presented by the low carbon transition.
Chosen constituents are weighted by market value while capping the weight of any single issuer at 4%. The index is reviewed on a quarterly basis.
As of the end of October, the index contained 120 securities from 81 issuers. One-third (32.1%) of the index weight was allocated to issuers from the financials sector with the next-largest exposures being industrials (11.4%), real estate (9.0%), and consumer discretionary (8.7%).
The weighted-average credit rating of bonds in the index was BBB+. The index was exhibiting a yield to worst of 0.44% and an effective duration of 5.45 years.
The ETF comes with an expense ratio of 0.18%.