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Today saw a small avalanche of ETF launches from a range of issuers. DWS rolled out two ETFs that it added to its growing lineup of ESG products, while Invesco launched a multifactor ETF covering international markets. Global X and newcomer Humankind Investments also launched ETFs.
DWS Adds To ESG Family
DWS rolled out two ETFs that serve as companions to its $455 million Xtrackers S&P 500 ESG ETF (SNPE). The Xtrackers S&P SmallCap 600 ESG ETF (SMLE) and the Xtrackers S&P MidCap 400 ESG ETF (MIDE) cover the small cap and midcap segments, respectively, while SNPE tracks an index derived from the large cap S&P 500 Index.
The two new funds come with expense ratio of 0.15%; both list on the NYSE Arca.
SMLE and MIDE track indexes that score individual companies on their performance with regard to environmental, social and governance criteria. They further exclude companies with significant exposure to tobacco, controversial weapons or thermal coal production or usage, as well as companies that score too low in their adherence to the United Nations Global Compact or that rank in the lowest 15-25% in the ESG scores.
The methodology looks to capture 75% of the float-adjusted market capitalization of each industry group, according to the prospectus.
In mid-December 2020, SMLE’s underlying index had 408 securities, while MIDE’s index had 274, the fund documents said.
“Our philosophy is really to make available the key asset classes with an ESG angle,” said Arne Noack, head of systematic investment solutions, Americas for DWS Group
DWS offers two lineups of ESG ETFs, with one marketed as the “Leaders” funds and tracking MSCI benchmarks. The other tracks domestic indexes from S&P Dow Jones Indices and includes SNPE, SMLE and MIDE. Noack says the two families both take “best in class” approaches to ESG investing, and their differing appeal to investors largely depends on whether they benchmark to MSCI or S&P indexes.
“Ultimately, the starting universe determines where we land at the end,” he noted. He emphasizes that the ESG ETFs offered by DWS are designed to provide investors with the core building blocks for constructing a portfolio.
Noack says that ESG strategies are a central part of DWS’ overall offering and future plans: “We see that really as a groundswell. We see that demand coming as wealth shifts to millennials. We see demand generally coming from investors who start realizing that it does matter where one puts their dollar to work."
Invesco Debuts Multifactor ETF
Invesco debuted an ETF focused on non-U.S. developed markets that offers dynamic exposure to factors based on market conditions. The Invesco International Developed Dynamic Multifactor ETF (IMFL) joins two existing Invesco funds that offer similar strategies for the large cap and small cap segments of the U.S. market.
IMFL comes with an expense ratio of 0.34% and lists on Cboe Global Markets.
“Invesco has a strong track record of offering dynamic multifactor ETFs that adapt and evolve factor holdings as the market environment changes,” said Anna Paglia, Global Head of ETFs and Indexed Strategies at Invesco. “Clients will now have access to international equities across geographies through an easily accessible single suite of ETFs.”
IMFL’s underlying index selects stocks based on their exposure to the low volatility, momentum, quality, size and value factors but on a monthly basis adjusts the emphasis on the different factors based on whether the economy is in a recovery, expansion, slowdown or contraction phase, the prospectus says. At the end of January, IMFL’s index included 565 securities.
Humankind Enters Market
Humankind Investments, a firm founded by a former Vanguard analyst, rolled out its own version of a socially responsible ETF targeting U.S. stocks. The index underlying the Humankind US Stock ETF (HKND) screens the U.S. market to select the top 1,000 companies that offer the most value to society by promoting “healthier, safer, more equitable and longer lives,” according to a press release.
HKND comes with a fairly competitive expense ratio of 0.11% and lists on the NYSE Arca.
“The main driver of the fund is really economic self-interest, which I think is not what you expect to hear from a socially responsible investment manager,” said CEO James Katz.
“But if you only focus on the number at the top of your investment portfolio, you’re really missing out on all kinds of other numbers in your life that are really important, like how much you pay in taxes, your medical bills, what your salary is. These are all really important things that people should be taking into account when they invest, in my view,” he added.
The fund’s prospectus notes that HKND’s index can include stocks that would be excluded by a traditional ESG strategy if their “net value provided to humanity” is ultimately positive. To be considered for inclusion, a U.S.-listed company must have at least $500 million in market capitalization, taking a very broad approach to the market.
In evaluating a company’s impact, the methodology considers its value or benefit to its investors, consumers, employees and society as a whole, as well as taking into account its supply chain relationships. All of those add up to a company’s value to humankind, and are ultimately used to determine a company’s weight in the index, the prospectus says.
“From our perspective, it makes sense that you would want to invest more in the companies that do more good things for humanity, and invest less—or not at all—in the companies that are doing less or even hurting humanity,” Katz explained.
Global X Targets Disruptive Innovation In China
Global X added to its extensive lineup of China ETFs with the launch of an actively managed fund focused on disruptive innovation in the country. The Global X China Disruption ETF (KEJI) is subadvised by Global X’s sister company Mirae Asset Global Investments (Hong Kong) Ltd.
KEJI comes with an expense ratio of 0.75% and lists on the Nasdaq.
The fund takes a broad approach by targeting companies that simply have economic ties to China rather than requirements around listing or domicile.
It targets companies that are involved in a wide variety of disruptive themes identified by the fund’s manager that, according to the prospectus, underlie “powerful structural changes.” Based on this goal, the fund invests in the companies in those areas most likely to see capital appreciation.
The document notes that individual companies are generally limited to a weight of 10%, while individual themes are limited to 35% of the portfolio. The fund’s managers rely on quantitative and qualitative screens to select securities for the portfolio.
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