UBS Asset Management has unveiled a new suite of income-focused ETFs targeting companies that offer sustainable dividends and meet strict ESG criteria.

UBS has introduced a new income-focused ETF suite tailored for ESG-minded investors.

The ‘Dividend Aristocrats ESG Elite’ ETF suite has debuted with two funds delivering exposure to global developed and US equity markets.

The UBS ETF (IE) S&P Dividend Aristocrats ESG Elite UCITS ETF (GLDVD) has been created by repurposing one of UBS’s traditional global dividend ETFs – the UBS ETF (IE) DJ Global Select Dividend UCITS ETF – which houses approximately $200 million in assets. It comes with an expense ratio of 0.30%.

The UBS S&P USA Dividend Aristocrats ESG Elite UCITS ETF (USDVD), meanwhile, is a brand new fund that has an expense ratio of 0.40%.

The ETFs are available to trade on London Stock Exchange, SIX Swiss Exchange, Deutsche Börse Xetra, and Borsa Italiano. Each is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).

Methodology

The funds are linked to indices that are socially responsible versions of S&P Dow Jones Indices’ well-known ‘Dividend Aristocrats’ index strategy – dividend aristocrats is the term given to companies that have maintained or increased their dividend payments for a specified number of years.

The investment thesis behind the Dividend Aristocrats strategy is that these companies may provide a reliable source of sustainable income while also being likely to exhibit favourable fundamental characteristics including consistent operating earnings, steady cash flow growth, and corporate discipline in volatile, low-growth markets.

The global Dividend Aristocrats index screens for companies that have maintained or increased their dividends every year for at least ten years, while the US index targets firms that have increased their dividends consistently for 20 years.

Companies with dividend yields above 10% are removed in order to screen out potential dividend traps – high-yielding firms that are likely to cut or scrap their dividend payments in the near future.

The ESG methodology underpinning the ETFs’ indices involves removing violators of UN Global Compact principles, companies embroiled in severe ESG-related controversies, and firms involved in controversial weapons, civilian firearms, thermal coal, tobacco, alcohol, adult entertainment, predatory lending, oil sands, oil & gas, shale energy, gambling, genetically modified organisms, nuclear power, and palm oil.

Potential constituents are also assigned ESG scores based on SAM’s ‘Corporate Sustainability Assessment’. Companies with ESG scores that sit in the lowest 25% of their universe are also not eligible for inclusion.

The US index selects all remaining eligible constituents, while the global index chooses the 100 stocks with the highest dividend yields.

Each index weights its constituents by dividend yield in a bid to enhance income potential. A single stock cap of 4% is applied at every rebalance.