Legal & General Investment Management (LGIM), the UK’s largest asset manager by assets under management, has rolled out another two fixed income ETFs in Europe offering ESG-integrated solutions.
LGIM has added two new ETFs to its ESG-integrated fixed income suite.
The L&G ESG USD Corporate Bond UCITS ETF and L&G ESG Emerging Markets Corporate Bond UCITS ETF provide sustainable exposure to US dollar-denominated corporate bonds from developed market and emerging market issuers respectively.
The funds have listed on London Stock Exchange, Deutsche Börse Xetra, and Borsa Italiana and each comes to market pre-endowed with £25 million in assets.
In line with the firm’s preexisting four ESG-focused fixed bond ETFs, which debuted last month, the new funds are linked to indices developed in partnership with JP Morgan. The indices draw upon the two firms’ combined experience in both active and passive fixed income management to structure portfolios that seek to create value and address liquidity considerations.
This includes leveraging LGIM’s liquidity-aware approach, which uses increased minimum issuance thresholds relative to traditional bond benchmarks as well as optimizations that seek to further enhance portfolio liquidity without sacrificing potential performance.
The indices attempt to avoid so-called ‘crowded trades’ such as the heightened selling activity that typically occurs when a bond is first downgraded into high-yield territory. By holding so-called ‘fallen angels’ for up to six months after their downgrade, the indices may benefit from the price reversion phenomenon that is often recorded in these bonds.
The indices also aim to enhance cash efficiency by reinvesting coupons immediately rather than waiting until the end of the month as is commonly the case with traditional bond benchmarks.
On the sustainability front, the indices harness insights from Sustainalytics and RepRisk to allocate greater weights to green bonds and issuers with the strongest ESG scores while maintaining a similar risk and return profile to their traditional value-weighted bond markets.
The methodology also removes UN Global Compact violators, firms with ESG scores lower than 20%, and companies operating in certain undesirable industries such as controversial weapons, thermal coal, tobacco, and oil sands.
The L&G ESG USD Corporate Bond UCITS ETF tracks the JP Morgan Global Credit Index (GCI) ESG Investment Grade USD Custom Maturity Index which consists of fixed and floating rate bonds denominated in US dollars and issued by corporate entities in developed markets. Eligible bonds must be rated investment grade, have an issue size of at least $500 million and have a time to maturity greater than six months. The fund comes with an expense ratio of just 0.09% and is listed on LSE in US dollars (USDC LN) and pound sterling (USDG LN) and in euros on Xetra (USAB GY) and Borsa Italiana (USDC IM).
The L&G ESG Emerging Markets Corporate Bond UCITS ETF, meanwhile, is linked to the JP Morgan ESG CEMBI Broad Diversified Custom Maturity Index which is similar as described above but focuses on issuers in emerging markets and limits the remaining maturity to a maximum of five years. The fund comes with an expense ratio of 0.35% and is also listed on LSE in US dollars (EMUS LN) and pound sterling (EMUG LN) and in euros on Xetra (EMAB GY) and Borsa Italiana (EMUS IM).
LGIM’s existing four ESG-focused fixed income funds provide sustainable exposure to short-term and broad-maturity sterling corporates, emerging markets govies, and Chinese government and policy bank bonds.
They are the L&G ESG GBP Corporate Bond UCITS ETF (GBPC LN), L&G ESG GBP Corporate Bond 0-5 Year UCITS ETF (GBP5 LN), the L&G ESG Emerging Markets Government Bond (USD) 0-5 Year UCITS ETF (EMD5 LN; EMDG LN; EMA5 GY; EMD5 IM), and the L&G ESG China CNY Bond UCITS ETF (DRGN LN; DRGG LN; DRGN GY; DRGN IM).
All six ETFs distribute income to investors.