UBS Asset Management has launched a new socially responsible ETF targeting junior companies listed in developed markets worldwide.
Clemens Reuter, Global Head of ETF & Index Fund Client Coverage at UBS Asset Management.
The UBS ETF (IE) MSCI World Small Cap Socially Responsible UCITS ETF has been listed in US dollars on London Stock Exchange (Ticker: WSCR LN) and SIX Swiss Exchange (WSCRI SW).
Further listings on Xetra and Borsa Italiana are expected in the near future.
Clemens Reuter, Global Head of ETF & Index Fund Client Coverage at UBS Asset Management, said: “Sustainability is a key focus area for UBS Asset Management and over the past ten years we have built a strong track record of managing SRI ETFs.
“This latest solution provides investors with the opportunity to gain global developed small-cap exposure, together with a strong sustainability profile.”
Methodology
The fund, which is Europe’s first sustainable ETF to focus on the global small-cap market, gains its exposure by tracking the MSCI World Small Cap SRI Low Carbon Select 5% Issuer Capped Index.
The index’s methodology applies strict screening including norms-based, values-based, and climate-related exclusions, as well as a best-in-class ESG selection approach, to the parent MSCI World Small Cap Index.
The parent index consists of more than 4,400 companies across 23 developed markets globally, capturing approximately 14% (from the 85th to 99th percentile) of the float-adjusted market capitalization in each country.
Firms embroiled in severe ESG-related controversies as well as those involved in nuclear power, tobacco, alcohol, gambling, military weapons, civilian firearms, GMOs, adult entertainment, fossil fuels, and oil & gas are removed.
To factor in a low carbon approach, the parent index constituents are ranked by carbon emissions and the top 10% of securities, by number, are removed while limiting the cumulative weight of securities excluded from any specific sector to less than 30% of that sector’s weight in the parent index.
Additionally, to reduce exposure to companies with high fossil fuel reserves, the parent index constituents are simultaneously ranked by their potential carbon emissions per dollar of market capitalization. The highest-ranked securities are excluded until the remaining cumulative potential carbon emissions are half that of the parent index.
Following the above screening steps, the remaining constituents are assigned ESG scores between AAA and CCC based on MSCI ESG Research’s evaluation of the most relevant ESG factors by industry and risk exposure. Stocks with ESG ratings below BBB (equivalent to average) are also eliminated.
The methodology then selects the companies with the highest ESG ratings that make up 25% of the market capitalization in each GICS-defined sector of the parent universe. Constituents are weighted by float-adjusted market capitalization, subject to a 5% cap per security.
The resulting index contains 735 names and, similar to its parent universe, is dominated by US-listed companies which make up 59.2% (vs. 58.8%) of the total weight. Exposure to the UK and Australia has increased relative to the parent universe with the countries accounting for weights of 9.5% (vs. 6.7%) and 6.2% (vs. 3.3%), respectively. Exposure to Japanese equities is lower at 6.7% (vs. 10.4%).
By design, the index maintains a similar sector allocation compared to its parent universe – the largest exposures are industrials (19.0%), financials (14.2%), consumer discretionary (14.0%), information technology (12.6%), and health care (12.5%).
The index is well diversified at the stock level with the largest constituent, US consumer retail company Williams Sonoma, accounting for a weight of just 0.7%.
The ETF comes with an expense ratio of 0.23% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
UBS offers a further nine ETFs harnessing MSCI’s ‘SRI’ methodology including global, global developed, US, eurozone, UK, Switzerland, Japanese, Asia Pacific, and emerging market funds.