UBS Asset Management has announced that its UBS ETF (LU) MSCI World Socially Responsible UCITS ETF has surpassed €1 billion in assets under management.
Andrew Walsh, Head of Passive & ETF Specialist Sales for UK & Ireland, UBS Asset Management.
The fund, which becomes Europe’s first ESG-focussed ETF to reach the €1bn milestone, debuted in 2011 and now stands at a healthy €1.16bn in assets (as of 13 August 2019).
Andrew Walsh, Head of Passive & ETF Specialist Sales for UK & Ireland, UBS Asset Management, commented, “This milestone represents a further confirmation of our commitment to meet the increasingly sophisticated needs of investors.
“We want to continue to stay at the forefront in developing innovative products and solutions for our clients, helping them to align their investments and ESG goals.”
The fund has experienced consistent investor demand, recording over €475 million net inflows since the beginning of September last year. April was the only net-outflow month over this period with the ETF shedding just €1.3m.
Flows have been particularly robust over the past three months with the fund pulling in €44.5m, €84.7m, and €87.1m in May, June, and July respectively.
According to UBS, the fund’s popularity reflects the growing demand for ESG strategies across the broader European investment industry. The firm notes that assets investing in Europe-listed, sustainability-focused ETFs reached €17bn in the first half of the year, up 70% compared to the end of 2018.
Equity products account for 84% of total ESG ETF assets in Europe, which is largely a reflection of the relative lack of ESG fixed income ETFs. The ESG fixed income sector is gaining momentum, however, with large inflows in the past 12 months leading to a doubling of assets to €2.8bn.
While the fund has benefitted from robust inflows, it has also been helped by healthy market performance. The ETF recorded a gain of 14.8% in euro terms between the start of the year and the day it crossed the €1bn threshold on 14 May 2019.
Equity market momentum has since reversed with the fund dropping 3.1% over the past month; however, this compares favourably to a fall of 3.6% for the MSCI World Index in euro terms over the same period.
This difference in performance highlights an important consideration of ESG products: that they can and do deviate from non-ESG equivalents. Proponents of ESG methodologies argue that by avoiding firms with significant ESG-related risks, ESG-focussed ETFs have the potential to outperform over the longer term.
Methodology
The fund is linked to the MSCI World Socially Responsible 5% issuer capped TRN Index, which it tracks through physical replication.
The index screens the constituents of the MSCI World Index to remove those involved in nuclear power, tobacco, alcohol, gambling, military weapons, civilian firearms, GMOs and adult entertainment.
The remaining constituents are then ranked by their ESG ratings which are provided by MSCI’s ESG research division. The methodology selects the highest-ranked stocks such that the index covers 25% of the market capitalization of each GICS sector, thereby producing a risk profile that is broadly in line with the parent index but adjusted for sustainability.
Securities are weighted by free-float market capitalization subject to a 5% cap per issuer.
The fund comes with a total expense ratio (TER) of 0.25%.
Historical AUM growth of UBS ETF (LU) MSCI World Socially Responsible UCITS ETF (in euros)
