JP Morgan has launched a new ETF in Europe providing Chinese equity exposure that is aligned with the transition to a low-carbon economy.
JP Morgan has rolled out a climate-focused Chinese equity ETF in Europe.
The JPMorgan ETFs (Ireland) ICAV – Carbon Transition China Equity (CTB) UCITS ETF has been listed on London Stock Exchange in US dollars (JCCT LN) and pound sterling (JCTC LN) as well as on Deutsche Börse Xetra (JCCT GY) and Borsa Italiana (JCCT IM) in euros.
The fund comes with an expense ratio of 0.35% and is classified as an Article 9 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
The ETF is linked to the Solactive JP Morgan Asset Management China Carbon Transition Index which selects its constituents from a universe of large and mid-cap Chinese companies listed on the Shanghai, Shenzhen, or Hong Kong stock exchanges.
The index first applies the exclusion requirements for EU Climate Transition Benchmarks (CTB), removing companies that are in violation of United Nations Global Compact principles, are involved in tobacco, controversial weapons, and military armaments, or are exposed to production and energy generation from thermal coal and oil sands.
The remaining constituents are then weighted using an optimization process that sets each sector’s weight equal to its weight in the initial universe and then, within each sector, tilts in favour of companies with higher ‘Carbon Transition’ scores.
Carbon Transition scores are determined through JP Morgan’s proprietary research and represent an aggregation of the following three metrics: an emissions score, which reflects how effectively the company is managing emissions on site, as well as through its provision of products and services; a resource management score, which reflects how effectively the company is managing resources such as electricity, water, and waste; and a risk management score, which reflects how effectively the company is managing the physical and reputational risks related to the climate transition.
The optimization seeks to maximize each sector’s Carbon Transition score while also accounting for liquidity constraints and diversification requirements related to minimum and maximum weight limits on individual constituents.
As of 12 December, the index contained 167 constituents with the largest positions being Tencent (13.0%), Alibaba (8.7%), Meituan (4.6%), China Construction Bank (3.4%), and JD.com (3.2%).
Investors looking for climate-focused Chinese equity exposure may also wish to consider the Franklin MSCI China Paris Aligned Climate UCITS ETF (PABC LN) which covers Chinese stocks across all major types of share classes while satisfying the requirements of EU Paris Aligned Benchmarks (PAB). PABC launched in June 2022 with an expense ratio of 0.22%.
Alternatively, the Global X China Clean Energy UCITS ETF (CCLN GY), which debuted in March, targets Chinese companies operating in renewable energy industries. Its expense ratio is 0.68%.