Paris-headquartered Lyxor has become the latest issuer to unveil an ETF aimed at socially responsible and ethically conscious investors.
Lyxor has entered the ESG space with the launch of an MSCI-linked ETF on Deutsche Börse that targets companies with strong and improving environmental, social and governance standards.
Listed on Deutsche Börse, the Lyxor MSCI EM ESG Trend Leaders UCITS ETF (LESG GR) provides investors with exposure to the performance of high ESG-rated (Environmental, Social and Governance) companies from emerging markets.
The fund tracks the MSCI EM Select ESG Rating and Trend Leaders Net Return USD Index, which is based on the MSCI Emerging Markets Index stock universe of large- and mid-cap stocks across 24 emerging markets countries.
The index is designed to represent the performance of companies that have a robust ESG profile, as well as – uniquely – a positive trend in improving that profile.
MSCI identifies those companies with a positive trend by tracking the ESG rating change from the prior period/assessment to the current period/assessment. Firms whose ratings have been upgraded over the period are assigned a positive score, which in turn increases their weight within the index.
The index aims to target sector weights that reflect the relative sector weights of the underlying index to limit the systematic risk introduced by the ESG selection process.
MSCI ESG Ratings provides an overall company ESG rating – a seven-point scale from ‘AAA’ to ‘CCC’. In addition, the product provides scores and percentiles, indicating how well a company manages each key issue relative to industry peers.
The index targets 50% of the free float-adjusted market capitalisation within each GICS sector of the underlying MSCI Parent Index.
The index is reconstituted on an annual basis in May to coincide with the May semi-annual review of the parent index, and the changes are implemented at the end of May.
The index has outperformed its parent MSCI EM index every year for the past five. In 2017, the index returned 40.99% versus 37.28% for the parent index. The story was the same in 2016; the ESG Trend Leaders version returned 15.02% versus the parent index at 11.19%.
Information Technology represents the highest weighting in the index by sector at 28.32%, followed by Financials at 27.26%. The largest holdings by company are: Tencent Holdings (12.13%); Taiwan Semiconductor (8.00%); and Naspers (4.68%).
The fund has a total expense ratio of 0.30%.