Legal & General Investment Management (LGIM) has introduced a suite of three equity ETFs designed for investors seeking sustainable income with socially responsible exclusions.

Howie Li, Head of ETFs at LGIM.

The funds track indices, co-developed by FTSE Russell and LGIM, which provide exposure to UK, developed Europe ex-UK, and developed Asia Pacific ex-Japan equity markets.

The funds have listed on the London Stock Exchange.

The L&G Quality Equity Dividends ESG Exclusions UK UCITS ETF (GBP: LDUK LN) tracks the FTSE All Share ex-IT ex-CW ex-TC ex-REITS Dividend Growth with Quality Net Tax Index and comes with an expense ratio of 0.25%.

The L&G Quality Equity Dividends ESG Exclusions Europe ex-UK UCITS ETF (GBP: LDEU LN; USD: LDEG LN) tracks the FTSE Developed Europe ex-UK All Cap ex-CW ex-TC ex-REITS Dividend Growth with Quality Net Tax Index and also comes with an expense ratio of 0.25%.

The L&G Quality Equity Dividends ESG Exclusions Asia Pacific ex-Japan UCITS ETF (GBP: LDAP LN; USD: LDAG LN) tracks the FTSE Developed Asia Pacific ex-Japan All Cap ex-CW ex-TC ex-REITS Dividend Growth with Quality Index and costs 0.40%.

Methodology

Each index is derived from a FTSE Russell’s broad market benchmark, namely the FTSE All Share Index, the FTSE Developed Europe ex-UK Index, and the FTSE Developed Asia Pacific ex-Japan Index.

Companies involved in the manufacture of controversial weapons as well as those in breach of UN Global Compact principles are removed. Additionally, any company that generates more than a quarter of its revenue from thermal coal extraction or electricity generation is also not eligible for selection.

To home in on high-income-producing stocks, the methodology selects only those companies that sit above the fiftieth percentile when ranking the universe by forward 12-month dividend yield, although stocks with a negative return on equity or negative ten-year dividend growth are not eligible.

Finally, a quality screen is designed to limit exposure to value traps – companies whose businesses are unable to sustain high dividend yields and subsequently reduce or scrap their payments. FTSE Russell calculates a proprietary quality score for each constituent based on that firm’s profitability, cash flow, asset growth, and leverage. Any company with a quality score that ranks in the bottom 10% within its ICB sector is removed.

Constituents are equally weighted, and the index is reviewed on a quarterly basis with buffer rules seeking to balance reduced turnover against continual exposure to quality and income factors.

Howie Li, Head of ETFs at LGIM, commented: “We apply a rigorous series of quantitative screens to select stocks based on their quality metrics, dividend characteristics, and ESG profile. We look to identify those quality companies that can sustain a consistent dividend and thus believe that this fund range is a powerful proposition for investors seeking to address their search for income, desire for growth potential, and increasing awareness of ESG risks.”

James Crossley, Head of UK Retail Sales at LGIM, added: “Dependable income is something investors are crying out for in the current environment, but some stocks with high dividend yields may be value traps with poor fundamentals and weak growth prospects. We believe that in giving investors exposure to a range of quality companies with strong dividend characteristics and avoiding material ESG risks, we are well-positioned to help them generate consistent income in their portfolios. These new funds add to what is already an impressive suite of ETFs, increasing the depth and breadth of LGIM’s offering to investors.”