UBS Asset Management has continued with its domination of the ESG space in European ETFs with the launch of a series of three ETFs based on indices from STOXX, MSCI and JP Morgan, and has also announced that its MSCI World Socially Responsible UCITS ETF, launched in 2011, has gone over EUR1.23 billion in July 2019.
This is the first European ESG ETF to go over the EUR1.0 billion threshold and makes UBS AM’s the biggest provider of ESG ETFs in Europe with 34 per cent of the assets under management.
Andrew Walsh (pictured), head of Passive & ETF Specialist Sales for UK & Ireland, UBS Asset Management, says: “There has been a wide array of clients who have been buying into this range of products but it’s been wealth managers who have made up the largest proportion of the buyers in these as these ETFs provide simple access to best in class ESG companies in a neat wrapper. Increasingly, we are finding that wealth managers are looking to replace core exposures with more sustainable versions of these.”
From conversations with wealth clients and those drawn from the family office and IFA community, clients are driving the demand for ESG or SRI type investment, particularly the next generation, who have read about ESG investing.
“There is an interesting development whereby the new generation of investors, where money has been passed down a generation, are reviewing their investments and saying ‘why would I want to own weapons or tobacco stocks?’” Walsh says.
“Of course, we are the product end and not privy to exactly what the end- investors are saying and thinking, but these are the sorts of things we hear from clients. Further, there seems to be a healthy amount of demand for more targeted ESG exposures and this is why we continue to develop more innovative products in this space.”
The new ETFs offer access to core Eurozone ESG-screened blue-chips through the UBS ETF (LU) EURO STOXX 50 ESG UCITS ETF; Chinese equities that pass ESG screening criteria are now accessible for the first time passively via the UBS ETF (LU) MSCI China ESG Universal UCITS ETF and investment grade USD denominated Emerging Market debt with a sustainability filter is now available via the UBS ETF (LU) J.P. Morgan USD EM IG ESG Diversified Bond UCITS ETF.
Walsh describes this last ETF as esoteric, which he believes is a good sign that the space and the appetite in the space is growing.
The original ETF, the MSCI World SRI ETF, includes companies that represent the top quartile on ESG criteria. “If you remove 75 per cent of the index, you are creating a best-in-class profile,” Walsh says.
The ESG filters across the emerging markets and, in particular, China, are not as strict but are designed to allow the ETFs to be viable alternatives to the standard type of product in each sector.
The China ESG Universal UCITS ETF, which offers a SRI ETF route to China for the first time, is based on the MSCI China ESG Universal Index, which favours companies with ‘a robust and an improving ESG profile’, and excludes companies that are ESG and/or controversy unrated, as well as those which have been involved in controversies or involved in the production of controversial weapons.
The ESG EM Diversified Investment grade bond ETF is designed to offer a credit and sustainability filtered selection of sovereign and corporate Emerging Market USD debt, and to offer diversification to bond portfolios.
UBS AM notes that sustainability-focused ETFs in Europe have seen assets reach EUR17 billion, up 70 per cent compared to the end of 2018, according to Morningstar. While equities in the ESG ETF sector represent 84 per cent of total assets, ESG fixed income ETFs have also seen growth with a doubling of assets in the last 12 months to assets of EUR2.8 billion.