European thematic specialist Rize ETF has launched two new funds delivering impact investment strategies.

Rahul Bhushan (l) and Stuart Forbes (r), Co-Founders and Directors of Rize ETF.

The Rize Global Infrastructure UCITS ETF (NFRA) invests in a global portfolio of companies building sustainable infrastructure, while the Rize USA Environmental Impact UCITS ETF (LUSA) targets US firms developing innovative solutions to the world’s most pressing environmental challenges.

The funds have been listed on London Stock Exchange in US dollars and pound sterling as well as on Deutsche Börse Xetra in euros. A further listing on SIX Swiss Exchange in Swiss francs is expected in the coming weeks.

Each 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).

Sustainable infrastructure

NFRA tracks the Foxberry SMS Global Sustainable Infrastructure USD Net Total Return Index which selects its constituents from a universe of developed and emerging market stocks with market capitalizations greater than $250 million and average daily trading volumes above $1m.

The methodology first screens for companies deriving at least 50% of their revenue from infrastructure-related activities linked to passenger transportation, ports, airports, toll roads, freight rail, renewable energy utilities, water utilities, waste management, data centres, telecom infrastructure, health care, and elderly homes. Firms with any exposure to fossil fuel infrastructure will not be eligible for index inclusion.

The screened companies are then assigned multi-factor scores based on three equally weighted pillars: a Sustainability Adjusted Revenue Score (the relative contribution of a company’s products and services to environmental and social objectives as set out in the EU’s Taxonomy for Sustainable Activities, a part of the EU’s SFDR, and the UN’s Sustainable Development Goals); an ESG Materiality Score (the relative ESG performance of each company); and a Financial Strength Score (the relative financial robustness of each company based on fundamental metrics).

The methodology initially selects the 100 companies with the highest multi-factor scores and, from this reduced pool, selects the 75 firms with the lowest share price volatility over the past 12 months.

Constituents are weighted by their multi-factor scores subject to certain liquidity constraints.

Commenting on the ETF’s investment strategy, Rahul Bhushan, Co-Founder and Director of Rize ETF, said: “NFRA enables traditional ETF investors to access global infrastructure in a way that balances economic, environmental, and social objectives. It enables thematic ETF investors to access a theme with both a low volatility screen and a quality screen to help diversify otherwise growth-heavy portfolios. Finally, it enables impact ETF investors to access an Article 9 solution with a novel and first-of-its-kind sustainability framework for infrastructure which is rooted in the EU Taxonomy and the UN SDGs.

“We are confident that the next wave of thematic ETF investing will be smarter and built for resilience, and crucially, solve client needs. This is precisely what NFRA aims to do, whilst disrupting the orthodoxy that thematic investing is synonymous with growth investing. This is the first theme of many for us that seeks to expand the way investors think about thematic exposures.”

Environmental impact

LUSA, meanwhile, is linked to the Foxberry SMS USA Environmental Impact USD Net Total Return Index which selects its constituents from a universe of US-listed, US-domiciled stocks with market capitalizations greater than $250m and average daily trading volumes above $1m.

The methodology targets companies with operations aligned with the six environmental objectives set out in the EU Taxonomy: climate change mitigation, climate change adaptation, the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems.

The index harnesses data provider SMS’s proprietary classification methodology to deconstruct the six environmental objectives into a series of high-impact investment sub-sectors including clean water, energy efficiency solutions, circular economy solutions, renewable energy equipment manufacturers, renewable energy generation, electric vehicles and green transport, pollution control, nature-based solutions, hydrogen and alternative fuels, and climate resilience solutions.

Firms must derive at least 50% of their revenue from their relevant sub-sector to remain eligible for the index.

Companies are then assigned ‘Environmental Impact Scores’ which comprise a forward-looking assessment of the impact potential for the sub-sector in solving key environmental challenges, the potential success of the sub-sector taking into account technological and financial considerations, and the individual company’s positioning within the sub-sector and its potential to emerge as a leader in the coming years.

The index selects the 100 stocks with the highest Environmental Impact Scores, weighting them according to their score subject to liquidity constraints.

Stuart Forbes, Co-Founder and Director of Rize ETF, commented: “LUSA seamlessly extends our environmental range of Article 9 ETFs. For quite some time, we have firmly believed that regionalizing thematic ETF exposures is essential, as it empowers investors to express more precise views. This approach also enhances the utility and functionality of such investments within portfolios.

“With the remarkable momentum currently driving the green transition in the US, evident through significant legislative bills like the Energy Act, Infrastructure Investment and Jobs Act, CHIPS and Science Act, and the Inflation Reduction Act, LUSA stands as the ideal choice to seize the multitude of investment opportunities emerging in this sector.”