DWS has launched a new suite of socially responsible ETFs in Europe targeting specific factor risk premia within global equity markets.
DWS has introduced a new suite of factor ETFs in Europe tailored for sustainability-minded investors.
The suite has debuted with four funds that aim to maximize exposure to quality, value, minimum volatility, and momentum factors while incorporating environmental, social, and governance (ESG) criteria.
Listed on Deutsche Börse Xetra, the four funds are the Xtrackers MSCI World Quality ESG UCITS ETF (XWEQ GY), Xtrackers MSCI World Value ESG UCITS ETF (XWEV GY), Xtrackers MSCI World Minimum Volatility ESG UCITS ETF (XWEB GY), and Xtrackers MSCI World Momentum ESG UCITS ETF (XWEM GY).
The ETFs are linked to MSCI World Factor Low Carbon SRI Screened Select Indices which are constructed from the MSCI World universe of large and mid-cap stocks across 23 developed market countries globally.
The methodology first screens out violators of UN Global Compact principles, companies embroiled in severe ESG-related controversies, and firms with business operations linked to controversial weapons, civilian firearms, tobacco, adult entertainment, alcohol, gambling, genetically modified organisms, nuclear power, fossil fuel extraction, and thermal coal power.
The remaining constituents are then assigned ESG scores between AAA and CCC based on the most relevant ESG factors by industry and risk exposure. Firms with ratings below BB (lower average) are also removed from the selection pool.
From the remaining universe, each index selects and weights its constituents using an optimization process that seeks to maximize exposure to its target factor while also satisfying certain ESG and diversification requirements.
The ESG requirements include an overall reduction of at least 30% in greenhouse gas emissions relative to sales, a reduction of at least 30% in greenhouse gas emissions relative to enterprise value, a reduction of at least 50% in active weight to the fossil fuel sector relative to the starting universe, and an improvement in overall ESG score as well as the trend of that score.
Diversification requirements include a minimum of 150 constituents as well as limits on the deviations in country, sector, and stock weights relative to the starting universe.
Each ETF comes with an expense ratio of 0.25% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).