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Ossiam launches ESG machine learning ETF

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Ossiam, an affiliate of Natixis Investment Managers, has launched the first European smart beta ESG ETF to use machine learning techniques.

The Ossiam World ESG Machine Learning UCITS ETF aims to deliver the net total return of a selection of equities in global developed markets using a machine learning algorithm that ranks companies according to their ESG and financial potential based on the analysis of data. The selection of companies is fine-tuned over time as the algorithm learns from the data.
 
Antonio Celeste, Head of ESG Business Development at Ossiam, says: “A clear trend has emerged of large equity investors putting ESG at the core of their allocation decisions. At the same time, progress in artificial intelligence, and the increased depth and quality of data, has enabled us to improve investment processes by incorporating the valuable information embedded in large amounts of ESG data.”
 
The strategy’s investment process is systematic. Within a large capitalisation global developed equity investment universe, an ESG filter first excludes equities that:
 
• Have undergone severe controversies
• Are involved in controversial weapons business
• Have significant operations in the tobacco or coal industries
• Are not compliant with the Ten Principles of the UN Global Compact
• Are excluded by the Norges Bank Investment Management list

The remaining equities are then screened using machine learning techniques that enable integration and processing of a very large set of ESG and financial data in order to select equities showing a distinct link between ESG characteristics and potential future financial performance. Securities classified as opportunities are considered for selection.
 
The last stage of the process applies Ossiam’s already-proven minimum variance portfolio construction technique.

The resulting portfolio exhibits an improved ESG rating as well as a reduced carbon footprint, compared to a selection of equities in global developed market.
 
Recent research by Natixis Investment Managers has shown that ESG-based investment is becoming standard practice for reasons of alpha and risk management for institutional investors; and more in demand from individual investors and pension savers, especially the ‘millennial’ generation, who want investment with consideration for social impact.
 
Bruno Poulin, CEO of Ossiam, says: “It has always been Ossiam’s mission to drive the investment industry forward. This strategy and ETF mark a key turning point in combining ESG principles with advanced investment techniques as we reach a tipping point for ESG, driven by policy makers, regulators and investors.”
 
The ETF will be available in January 2019 in USD and EUR share classes on the Deutsche Börse XETRA exchange with the ticker symbol OWLU and OWLE. The fund has a total expense ratio of 0.65%. The fund is domiciled in Ireland using an ICAV structure.

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