Invesco has launched the first sterling corporate bond ETF in Europe to incorporate environmental, social, and governance (ESG) criteria.
The Invesco GBP Corporate Bond ESG UCITS ETF (IGBE LN) has listed on London Stock Exchange and comes with an ongoing charge of 0.10%.
It has been seeded with £25 million in assets under management.
The fund is linked to the Bloomberg Barclays MSCI Sterling Liquid Corporate ESG Weighted Bond Index which harnesses Bloomberg’s expertise in fixed income indexing while leveraging research from MSCI to exclude issuers in controversial industries and tilt towards those with higher ESG ratings.
The index is based on the parent Bloomberg Barclays Sterling Corporate TR Value Unhedged GBP Index which comprises sterling-denominated, investment-grade, fixed-rate securities. Bonds must be issued by companies in developed markets and have at least £350 million par amount outstanding.
Companies embroiled in severe ESG-related controversies as well as those involved in tobacco, thermal coal, oil sands, civilian firearms or military weapons are excluded. The remaining constituents are weighted using a combination of their market capitalization and an ESG factor tilt which is based upon MSCI ESG ratings – the index provider uses a seven-point scale from ‘AAA’ to ‘CCC’ to rate how a company manages key issues relative to industry peers. Rebalancing occurs on a monthly basis.
The index currently consists of 418 securities (compared to 840 for the parent universe) and offers a current yield of 4.24% with an effective duration of 8.39 years. The average credit rating of bonds within the index is A-.
Based on back-tested historical performance, the ESG index has shown consistent tracking and exhibited similar return and risk characteristics to the parent universe, highlighting that investors need not sacrifice returns to invest in line with values-based principles.
Paul Syms, Head of ETF Fixed Income Product Management at Invesco, commented, “Income investors continue to struggle for decent yield and, up until now, finding an attractive yield with ESG considerations factored into the product has been tough. The index this ETF follows has been designed to offer a higher ESG score than the broad corporate bond market but with similar sector exposures, credit ratings, and risk characteristics. As a result, we would expect the ETF to provide similar yield, duration and overall performance that investors would receive from a broad index.”
Gary Buxton, Head of EMEA ETFs at Invesco, added, “As we continue building out our range of equity and fixed income ESG products, we are keen to ensure investors have not only a well-considered strategy but also an economical way to express their ethical views. We have launched this fund with an annual management fee of just 0.10%, placing it on level par with our non-ESG corporate bond ETFs, which are among the lowest cost of competing products.”
The fund trades in GBP. Income is sent to investors on a quarterly basis.