Legg Mason and its affiliate ClearBridge Investments have teamed up for the launch of two new actively managed, environmental, social and governance (ESG)-focused ETFs: the ClearBridge Large Cap Growth ESG ETF (LRGE) and the ClearBridge Dividend Strategy ESG ETF (YLDE), both listed on the NASDAQ exchange.
For both ETFs, ESG evaluation is fully integrated into the fundamental research process that guides stock selection with every company in the coverage universe given an ESG rating.
Terrence Murphy, CEO, ClearBridge, commented: “For over 25 years, our firm has prioritised integrating ESG factors into our investment process and developing a proprietary ESG rating system across our research platform. ESG analyses are a core part of our fundamental research process and are done for every company in our coverage universe and our new ETFs will leverage this experience.”
The ClearBridge Large Cap Growth ESG ETF invests in large-cap companies with the potential for above average earnings and cash-flow growth and a strong commitment to ESG principles. The fund managers look for stocks that have a sustainable competitive advantage as evidenced by differentiated business models, high returns on capital, strong balance sheets, and capable management teams that aim to allocate capital in an efficient manner.
The performance of the ETF is benchmarked to the Russell 1000 Growth Index and the expense ratio of the fund is 0.59%. As of 31 May 2017, the fund had 42 holdings, the largest of which being Amazon (5.0%), Microsoft (4.4%) and Alphabet (3.6%).
The ClearBridge Dividend Strategy ESG ETF invests in high-quality companies with a strong commitment to ESG principles that have long histories of paying attractive dividends and have the potential to grow dividend payments over time.
The performance of the ETF is benchmarked to the S&P 500 Index and the expense ratio of the fund is 0.59%. As of 31 May 2017, the fund had 52 holdings, the largest of which were State Street Institutional Investment Trust (6.52%), Time Warner (2.9%) and Home Depot (2.8%).
For both ETFs, ESG evaluation is fully integrated into the fundamental research process that guides stock selection. The portfolio management teams rely on inputs from sector analysts who assign an ESG rating to every company in their coverage universe. Assessment of corporate governance practices such as board independence and diversity as well as social factors including labour/hiring practices and community involvement occur across all companies.
Environmental considerations specific to a company’s industry or sector are also analysed. ClearBridge also seeks to improve risk-adjusted performance through engagement with portfolio companies on ESG practices, proxy voting and by raising awareness of ESG issues.