Lyxor has listed three new ETFs built to provide a more sustainable exposure to High Yield bonds. The three ETFs – covering USD High Yield, EUR High Yield, and Global High Yield – use Bloomberg Barclays MSCI Sustainable SRI indices, which apply sustainability filters to the bond universe to reduce exposure to controversial and low-ESG-rated issuers.
The indices apply a rigorous ESG standard to High Yield bond issuers: a minimum MSCI ESG rating of BBB is required to be included in the index. MSCI’s ESG ratings methodology filters out issuers with low ESG scores and/or who are materially involved in controversial industries. Bond issuers either classified as a “Producer” of a given controversial product or service, or who derive significant revenue from it, are screened out of the index.
The USD High Yield and the Global High Yield ETFs will be listed in USD on London Stock Exchange on 13 February 2020. The whole range will be listed in EUR on Borsa Italiana on the 25 February 2020. With a TER (Total Expense Ratio) of 0.25 per cent, these are the lowest-cost ETFs tracking High Yield indices with ESG filters.
Lyxor’s latest High Yield ETF launches follow a 2019 decision to move the bulk of its Investment Grade bond ETFs to the Bloomberg Barclays MSCI Sustainable SRI indices using the same ESG rating methodology. ESG Fixed Income ETFs represent 2.2 per cent of the European Fixed Income ETFs universe, but in 2019 they gathered EUR3.7 billion of net new assets (6.9 per cent of the overall asset gathering of Fixed Income ETFs). Lyxor launched the world’s first Green Bond ETF back in 2017 and believes that sustainable fixed income ETFs will attract growing investor demand.
Philippe Baché, Head of Fixed Income at Lyxor ETF, says: “ESG rating in High Yield is one of the latest innovations in fixed income indexing. We are always looking for ways to provide investors with even more innovative tools to achieve their sustainable goals. By applying an ESG lens to the High Yield bond universe, we are able to provide a significant move away from parent indices offering a potentially more conservative risk profile.”
Sanjay Rao, Product Manager, Bloomberg Barclays Indices Europe, says: “We are delighted that the latest addition to our suite of fixed income indices, the Bloomberg Barclays MSCI HY SRI Indices, have been selected by Lyxor ETF for their new high yield bond ETFs. Since the Bloomberg Barclays MSCI ESG fixed income investment grade indices were launched in 2013, ESG investing has continued to grow and we will continue to evolve our offering to provide investors with a broad portfolio of ESG index solutions.”