Fidelity completes enhanced equity ESG suite with two Asia ETFs

Dec 7th, 2020 | By | Category: Equities

Fidelity International has rounded out its sustainability-focused enhanced equity ETF suite with the launch of two actively managed strategies offering Japanese and Asia Pacific ex-Japan exposures.

Fidelity completes enhanced equity ESG suite with two Asia ETFs

Fidelity International has rounded out its enhanced equity ESG suite with two Asia-focussed ETFs.

The Fidelity Sustainable Research Enhanced Japan UCITS ETF (FJPR LN) and Fidelity Sustainable Research Enhanced Pacific Ex Japan UCITS ETF (FPXR LN) have listed on London Stock Exchange.

Each fund comes with an expense ratio of 0.30%.

While the ETFs are officially actively managed, their risk profiles are expected to bear a close resemblance to the MSCI Japan and MSCI Asia Pacific ex-Japan indices by maintaining tracking errors of less than 2% relative to these benchmarks.

The ETFs will, however, seek alpha by selecting and weighting stocks in favour of those that Fidelity’s research analysts have identified as having a positive fundamental outlook and strong sustainability credentials.

Fidelity’s fundamental process combines broad bottom-up, company-specific research with macroeconomic factor analysis and forecasts. Companies are scored based on research analyst views depending on buy/sell recommendations and how recently the rating was issued. These scores are then used to generate predicted return values for each stock.

Environmental, social, and governance (ESG) considerations are integrated into the portfolio by way of screening and company-specific ESG scores.

The screens typically remove companies in violation of globally recognized standards in areas such as environmental protection and human rights as well as firms that derive significant revenue from controversial activities including weapons manufacturing and tobacco production.

As well as excluding non-compliant companies, the ETFs also systematically tilt toward companies commanding higher ESG scores. A company’s ESG score is determined using a combination of third-party data and in-house research which assesses key risk factors, including, for example, accounting and tax policies, disclosure and investor communications, shareholder rights, remuneration, and social and environmental factors.

Interestingly, neither the ESG score assessment nor the related screening may ultimately be determinative on investment decisions. The portfolio managers may still purchase and retain the stock of companies failing to meet the ESG criteria if it believes it is in the best interests of the fund – presumably for performance purposes. For ESG purists seeking consistency throughout their portfolio, this might be something to look out for.

The portfolios will typically consist of 150-200 stocks for the Japan ETF and 100-150 stocks for the Pacific ex-Japan ETF.

Fidelity offers a further four funds within its Sustainable Research Enhanced ETF suite, benchmarked against well-known global developed (MSCI World), US (MSCI USA), European (MSCI Europe), and emerging market (MSCI Emerging Markets) indices. They come with expense ratios between 0.30% and 0.35% and collectively house $250 million AUM.

Nick King, Head of ETFs at Fidelity International, commented, “The cornerstone of Fidelity’s investment approach is bottom-up research. The Sustainable Research Enhanced ETF range leverages our fundamental and ESG research to provide efficient and cost-effective building blocks. I am delighted to further expand this range to offer our clients a full set of core regional exposures with sustainable characteristics.”

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