European thematic ETF issuer Rize ETF has introduced a new fund targeting companies that are facilitating the transition to a so-called ‘circular economy’.
The circular economy aims to reuse, repair, refurbish, and recycle existing materials and products for as long as possible.
The Rize Circular Economy Enablers UCITS ETF has been listed on London Stock Exchange in US dollars (CYCL LN) and pound sterling (CIRC LN), on Deutsche Börse Xetra in euros (CIRC GY), and on SIX Swiss Exchange in Swiss francs (CYCL SW).
The ETF comes with an expense ratio of 0.45% and is classified as an Article 9 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
A circular economy aims to keep resources in use for as long as possible, extracting the maximum value from them whilst in use, before recovering and regenerating products and materials at the end of each service life.
The system contrasts with the traditional linear economy where resources and products are disposed of once they have been used.
Companies that ascribe to a circular economy business model contribute to the development of resource-efficient materials, production, and distribution solutions.
Rahul Bhushan, co-Founder and Director of Rize ETF, commented: “A circular economy aims to break the current linear economic cycle by prioritizing waste prevention and the continuous use of resources. Transitioning to a circular economy directly addresses the challenges of resource scarcity, environmental degradation, and climate change.”
The circular economy investment theme is not new to Europe’s ETF industry with the $970 million BNP Paribas Easy ECPI Circular Economy Leaders UCITS ETF (REUSE FP), which comes with an expense ratio of 0.30%, and the recently launched VanEck Circular Economy UCITS ETF (REUS LN), which costs 0.40%, both already delivering access to the space.
Rize maintains, however, that its offering is distinguished from these competitors as it places special emphasis on the ‘enablers’ of the circular economy. This is in contrast to existing strategies that focus more on ‘practitioners’ (i.e. companies who are implementing circular economy principles into their business models) or firms that are enabling end-of-life best practices within the linear economy.
Stuart Forbes, co-Founder and Director of Rize ETF, said: “We recognized the need for an impact strategy focused on the circular economy. By acknowledging the nuanced degrees of circularity and the diverse contributions different companies are making toward enhancing circularity, our ETF stands as a testament to our commitment to sustainable investing. With this unique perspective, we enable investors to participate in the journey towards circularity, unveiling new dimensions of value and promoting sustainable growth.”
Methodology
The fund is linked to the Foxberry SMS Circular Economy Enablers Index, an index co-developed by Rize, index administrator Foxberry, and sustainability research firm SMS (Sustainable Market Strategies) Financial Technologies.
The index selects its constituents from a universe of stocks listed in developed and certain emerging markets. To be eligible for inclusion, a company must have a market capitalization greater than $250 million and an average daily turnover above $1m.
The methodology screens for firms deriving at least 50% of their revenue from products or services that enable the circular economy. SMS Financial Technologies utilizes its proprietary thematic classification scheme that was inspired by an anthology of circular economy literature published by the European Commission.
Each eligible constituent is then assigned a ‘Circular Enablers Score’ which is derived from an equal contribution of a revenue score (based on the percentage of revenue derived from circular economy enabling activities with certain activities considered more relevant than others) and a financial strength score (based on profitability, growth, valuation, and leverage ratios).
The index then ranks the stocks according to their Circular Enablers Scores and selects the top half for inclusion. Constituents are weighted according to their scores, and the index is reviewed on a semi-annual basis with buffer rules helping to limit unnecessary turnover.
The new fund launch brings Rize’s total ETF offering to nine, complementing existing sustainable thematic ETF strategies including the Rize Environmental Impact 100 UCITS ETF (LIFE LN) and the Rize Sustainable Future of Food UCITS ETF (FOOD LN).