Paris-based ETF issuer Ossiam has introduced the first ETF to provide exposure to eurozone government bonds with reduced carbon exposure.
Bruno Poulin, CEO of Ossiam.
The Ossiam Euro Government Bonds 3-5Y Carbon Reduction UCITS ETF 1C (EUR) (OG35 GY) has listed on Deutsche Börse’s Xetra and is tradeable in euros.
It comes to market with €200 million in assets after a successful pre-launch offering.
Bruno Poulin, CEO of Ossiam, said, “We are very pleased to announce the launch of our latest ETF, expanding on our ESG product range. This complementary building block allows investors to manage the overall carbon footprint of their portfolio.”
The ETF is linked to the ICE 3-5 Year Euro Government Carbon Reduction Index which is based upon the parent ICE BofAML 3-5 Year Euro Government Index universe of euro-denominated sovereign bonds issued by eurozone countries. To be eligible for this universe, securities must be investment-grade rated with at least €1 billion outstanding and a remaining maturity of between three and five years.
The carbon reduction index seeks to reduce the carbon footprint relative to this parent index by 30%. It does this by way of an optimization process that increases the index weights of countries with lower CO2 per capita relative to the parent index.
The optimization process must adhere to certain constraints and will lower its carbon reduction target in order to meet them. The constraints include a maximum security weight of 10%, a maximum deviation relative to the parent index of 5% for any country, and a maximum deviation of 1% for any duration bucket (0-3 years; 3-4 years; 4+ years).
The index is reconstituted and rebalanced on a monthly basis.
It currently has an average credit quality rating of A2 and an effective duration of 3.8 years. It has achieved an actual 12.6% reduction in average CO2 per capita compared to the parent universe.
The methodology also incorporates a monthly market-conditions overlay that shifts the index closer to the parent universe when sentiment towards eurozone government bonds is deteriorating, thereby reducing the relative risk between the two indices.
The market-conditions overlay examines the average yield spread for Italian and Spanish 3-5 year bonds over their German counterparts. If that composite spread is growing at a rate of acceleration that exceeds a certain threshold, the index will shift 75% of its exposure to its parent universe.
The fund comes with an expense ratio of 0.17%.
This compares to just 0.05% for the €560m Amundi Prime Euro Govies UCITS ETF (PRAR GY), the cheapest regular euro government bond ETF in Europe.