DWS has expanded its line-up of socially responsible fixed income ETFs in Europe with a new fund targeting sovereign debt from eurozone countries.
The fund provides socially responsible exposure to eurozone government bonds.
The Xtrackers II ESG Eurozone Government Bond UCITS ETF (XZEB GY) has been listed on Deutsche Börse Xetra in euros.
The fund’s investment approach is based on a comprehensive country ESG assessment and weighting framework developed by FTSE Russell.
The underlying FTSE ESG Select EMU Government Bond Index covers fixed-rate, investment-grade sovereign bonds that are denominated in euros and issued by countries belonging to the common currency.
The index includes bonds that have more than one year remaining until final maturity and a minimum issue size of €2.5 billion.
Each country in the index is assigned an overall ESG score based on an in-depth assessment drawing upon dozens of indicators across the three core ESG pillars.
With reference to environmental performance, countries are assessed on energy, climate, and resource management; for social performance, countries are assessed on inequality, employment, human capital, health, and societal wellbeing; and for governance performance, countries are assessed on corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice and accountability.
The methodology removes the countries with the lowest ESG scores that account for 20% of the market value of the initial universe.
The index then starts with the market value weights of the remaining countries before using the ESG scores to tilt towards countries with superior ESG profiles and away from countries with inferior ESG profiles. Rebalancing occurs on a monthly basis.
The resulting index is significantly different compared to the traditional FTSE EMU Government Bond Index (EGBI).
One of the most notable changes is the complete removal of Italian sovereign bonds which accounted for 23.0% of the EGBI’s exposure. Spanish and Belgian bonds have also been significantly reduced down to just 4% and 3%, respectively, while the weight of French and German bonds have been notably increased with each country accounting for around 35% of the total exposure. The Netherlands has also been overweighted, making up 15% of the index.
The average credit rating of bonds is also higher than the EGBI. AAA and AA-rated bonds each account for half of the total weight, up from 24% and 37% respectively.
The index is yielding 1.4% with an effective duration of 8.1 years. (All data as of the end of June)
The ETF comes with an expense ratio of 0.15% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).