Invesco has launched an ETF designed to offer investors exposure to the high yield corporate bond market with improved ESG characteristics. The Invesco USD High Yield Corporate Bond ESG UCITS ETF is the firm’s latest low-cost passive offering for investors wanting to incorporate ESG considerations throughout their portfolios.
Paul Syms, Head of EMEA ETF Fixed Income Product Management at Invesco, says: “If we start out looking at the broad asset class, we see the current environment could favour taking credit risk over duration for income investors wanting a pick-up in yield, particularly if inflation continues raising the prospects of Fed rate hikes. Strong economic recovery would also typically support risk assets such as high yield. The next consideration is on sustainability and the picture being painted by investor flows is vivid. In the first six months of the year, 73 per cent of net flows into fixed income ETFs were into funds incorporating ESG filters.”
The Bloomberg Barclays MSCI USD High Yield Liquid Corporate ESG Weighted SRI Bond Index tracked by the Invesco ETF will seek to increase overall exposure to those issuers demonstrating a robust ESG profile. Securities are excluded if they have an MSCI ESG rating below BB or have no rating; have faced very severe controversies pertaining to ESG issues over the last three years or have no MSCI ESG Controversy Score; are involved in alcohol, adult entertainment, controversial weapons, conventional weapons, genetically modified organisms, firearms, nuclear weapons, nuclear power, oil sands, thermal coal, tobacco; or are from emerging market issuers.
Each of the eligible component securities is then assigned an ESG score using MSCI ESG metrics. This ESG Score is then applied to re-weight the eligible securities from their natural weights as a result of the notional size of the bond, to construct the weighting of the index. Issuers are capped at 5 per cent to reduce concentration risk.
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, says: “We believe investors, the environment and society as a whole should all have the opportunity to benefit from the growth of opportunities to invest more responsibly. ETFs offer investors even greater choice to express their principles while meeting financial objectives, not only in their equity allocation but increasingly other asset classes, especially fixed income. We expect this trend to continue over the coming months and years.”
This ETF is the latest addition to the firm’s broadening ESG range. Invesco launched the world’s first Sterling corporate bond ETF with an improved ESG profile and is the process of launching its 12th equity ESG ETF. Invesco has also recently launched an ETF that focusses on companies driving the transition towards clean energy.