Ossiam, a specialist in smart beta investment solutions and an affiliate of Natixis Investment Managers, has listed a new ESG low carbon multi-factor ETF on the London Stock Exchange, the Ossiam US ESG Low Carbon Equity Factors UCITS ETF.
The exchange-traded fund applies a rule-based quantitative strategy that dynamically selects large, mid- and small-cap equities in US markets based on their ESG (environmental, social and governance) characteristics and exposure to equity factors.
Bruno Poulin, CEO, Ossiam, says: “The launch of our latest ETF exploits the strength of evidence for equity factors as a means of achieving alpha over the long term. We believe that a static approach to factor investing is inefficient. Our dynamic approach recognises the existence of factors at both sector and stock level, which complement each other under different market conditions. On that basis, our exposure to multiple factors at both levels enhances diversification. Built on sound academic foundations and taking into account ESG principles, the strategy aims to deliver long-term outperformance with limited tracking error.”
The ETF’s strategy firstly applies a best-in-class filter which selects the 80 per cent best ESG-rated stocks from a basket of US equities for each industrial sub-sector. The strategy then applies several normative filters to exclude securities that: undergo severe controversy; are involved in controversial weapons business; have significant operations in the tobacco or coal industries; are in breach with at least one of the Ten Principles of the UN Global Compact; or have more than 20 per cent of their production in coal-fired plants.
This pool of stocks is then used to build two distinct portfolios – a stock factor portfolio and a sector factor portfolio – which are equally weighted in the strategy. For the stock factor portfolio, individual stocks are screened for significant exposure to the standard equity factors (value, momentum, size and volatility) and their lower carbon footprint. Those with the highest multiple factor exposures are selected.
For the sector factor portfolio, the strategy considers value and momentum factors. The sectors’ benchmark weights are increased or reduced to optimise their exposure to these factors and to reduce their total carbon footprint by 40 per cent compared to the respective sectors in the benchmark.
The ETF was listed last week on Deutsche Börse Xetra.
The Ossiam US ESG Low Carbon Equity Factors UCITS ETF 1A (USD) share class (ISIN: IE00BJBLDJ48) will be traded in GBP (ticker: LOUF LN) and USD (ticker: OUFU LN). It carries a total expense ratio of 0.45 per cent.