Invesco has launched the first Sterling corporate bond ETF in Europe that incorporates environmental, social and governance (ESG) criteria. In 2019, net flows into ETFs with an ESG theme more than doubled their assets under management, but more than 80 per cent of these inflows were into equity funds. The new Invesco ETF aims to address the growing needs of income investors who, until now, have had limited choice, especially Sterling-based investors who are looking for low-cost passive exposure to an ESG benchmark.
The Invesco GBP Corporate Bond ESG UCITS ETF offers investors the combined expertise of three leading firms: Bloomberg Barclays for fixed income indexing, MSCI for ESG research and Invesco for the efficiency and liquidity of its ETF structure.
The ETF aims to deliver the performance of the Bloomberg Barclays MSCI Sterling Liquid Corporate ESG Weighted Bond Index, net of fees. The Index comprises sterling-denominated investment grade, fixed-rate securities. Bonds must be issued by companies in developed markets and have £350 million minimum par amount outstanding. Any company involved in tobacco, thermal coal, oil sands, civilian firearms or military weapons is excluded from the Index. The weights of the constituents are then adjusted based upon certain ESG metrics, which seek to increase overall exposure to those issuers demonstrating a robust ESG profile.
Paul Syms, Head of ETF Fixed Income Product Management at Invesco, says: “Income investors continue to struggle for decent yield and, up until now, finding an attractive yield with ESG considerations factored into the product has been tough. The Index this ETF follows has been designed to offer a higher ESG score than the broad corporate bond market but with similar sector exposures, credit ratings and risk characteristics. As a result, we would expect the ETF to provide similar yield, duration and overall performance that investors would receive from a broad index.”
Gary Buxton, Head of EMEA ETFs at Invesco, adds: “As we continue building out our range of equity and fixed income ESG products, we are keen to ensure investors have not only a well-considered strategy but also an economical way to express their ethical views. We have launched this fund with an annual management fee of just 0.10%, placing it on level par with our non-ESG corporate bond ETFs, which are among the lowest cost of competing products.”
The Index is rebalanced monthly and the portfolio manager will be pragmatic when rebalancing the fund. The portfolio manager may also use sampling techniques to match as closely as practical the characteristics of the Index.