Smart beta specialists Research Affiliates has unveiled a new index strategy that integrates climate transition considerations within its existing multi-factor equity approach.
Katrina Sherrerd, President and Chief Executive Officer, Research Affiliates
The RAFI Multi-Factor Climate Transition Index Series is designed to support the transition to a low-carbon economy while maintaining the potential for long-term outperformance through tapping into well-researched factor risk premia.
The strategy provides diversified exposure to value, low volatility, quality, and momentum factors while simultaneously incorporating objectives related to greenhouse gas emission reductions.
Each index complies with the requirements for the Climate Transition Benchmark as specified by the EU Commission’s Technical Expert Group on Sustainable Finance.
These requirements include significantly lowering greenhouse gas intensity, maintain an annual reduction in carbon emissions, and exclude assets that significantly harm ESG objectives.
The indices cover a variety of geographic categories and market capitalizations, providing investors with a wide range of choices to meet their unique preferences. They are suitable to be licensed as the underlying references for index-linked investment products such as ETFs.
Katrina Sherrerd, President and Chief Executive Officer, Research Affiliates, commented, “At Research Affiliates, we seek to offer index strategies that meet investor preferences and to deliver superior expected returns over a full investment cycle. Our Climate Transition index strategies provide the market with an excellent choice for those who want their portfolios to reflect a commitment to environmental sustainability.”
Vitali Kalesnik, Director of Research for Europe, Research Affiliates, added, “Carbon emissions data are critical to investors’ increasingly important role in helping combat climate change. One of the objectives of the RAFI Multi-Factor Climate Transition Index Series is to promote incentives for companies to start reporting their emissions.”
Research Affiliates’ factor indices already underlie several ETFs including products from BlackRock and Invesco, while PIMCO offers a trio of funds linked to the firm’s RAFI multi-factor strategy that collectively house over $750 million in assets under management.
PIMCO also became the first issuer to launch an ESG ETF linked to a RAFI index with the introduction of the PIMCO RAFI ESG US ETF (RAFE US) at the end of last year.
With low carbon strategies expected to drive ESG growth, according to research from Cerulli Associates, the new index suite is well placed to capitalize on future product trends.