IndexIQ has launched five new ETFs that employ an environmental, sustainable and governance (ESG) filter to screen potential securities and then a smart beta multi-factor methodology to weight the selected constituents. The suite includes three equity and two bond (sovereign and corporate) ETFs listed on the Euronext Paris Exchange.
The three equity and two bond ETFs are all listed in euros on the Euronext Paris Exchange.
Combining ESG and smart beta is a popular trend at the moment, and this launch is the latest addition to a growing number of ETFs that marry the two methodologies.
The ETFs track a range of indices designed by Solactive and Candriam. Koen Van De Maele, deputy CIO, Candriam, commented: “The ETFs combine two long-term investment developments: the growing awareness of SRI and the widespread adoption of factor investing. We strongly believe that by combining both ESG criteria with specific factor tilts we can achieve better risk-adjusted returns for our clients.”
For the equity indices and the corporate bond index, the ESG filter targets companies that meet sustainable and responsible investing (SRI) criteria developed by Candriam. The SRI selection process retains the companies which are best positioned to meet ESG standards in each sector and screens out highly controversial companies.
After the SRI screen, companies are given a fundamental weight based on average sales over the past five years, average net earnings over the past five years, average operating cash flow over the past five years and current book value. For the equity indices, the fundamental weight is then tilted towards the value, quality and low volatility factors, and for the corporate bond index, the fundamental weight is tilted towards the value, low volatility and momentum factors.
The sovereign bond index uses an SRI filter that retains countries which are well equipped to manage their human, natural and social capital and provide economic stability, and which are not considered as highly oppressive regimes. Securities are given a fundamental weight based on GDP and population of the issuer, and then a factor tilt is applied towards the value, quality and low volatility factors.
The ETFs along with their total expense ratios (TERs) are as follows:
IndexIQ – Factors Sustainable Europe Equity Index UCITS ETF (EP: IQEE) – 0.30%
IndexIQ – Factors Sustainable EMU Equity UCITS ETF (EP: IQMU) – 0.30%
IndexIQ – Factors Sustainable Japan Equity UCITS ETF (EP: IQJP) – 0.35%
IndexIQ – Factors Sustainable Sovereign Euro Bond UCITS ETF (EP: IQEG) – 0.30%
IndexIQ – Factors Sustainable Corporate Euro Bond UCITS ETF (EP: IQEC) – 0.35%