Hang Seng Investment Management has launched the first ETF in Hong Kong providing socially responsible exposure to the city’s main stock market barometer – the Hang Seng Index.
The ETF is the first in Hong Kong to track an ESG-enhanced version of the Hang Seng Index.
Listed on the Stock Exchange of Hong Kong, the HSI ESG Enhanced Select Index ETF (3136 HK) tracks the performance of the HSI ESG Enhanced Select Index.
The index screens out stocks from the Hang Seng Index universe based on various norms and values-based criteria before reweighting the remaining constituents so as to enhance the overall ESG profile.
The Hang Seng Index represents the largest and most liquid Greater China companies trading on the Stock Exchange of Hong Kong. Primary and secondary share listings, as well as real estate investment trusts (REITs), are all eligible for inclusion.
The index recently embarked upon some changes which aim to deliver a more balanced representation of the Hong Kong stock market while also preserving the representation of local firms in an index that has become increasingly dominated by Mainland-domiciled companies. Following the changes, the Hang Seng now targets at least 50% market capitalization coverage across seven major industry groups, and also ensures that at least 20 Hong Kong domiciled constituents are included.
The HSI ESG Enhanced Select Index, meanwhile, begins its construction process by removing from the Hang Seng all known violators of UN Global Compact principles as well as companies with business operations linked to controversial weapons, tobacco, or thermal coal.
Hang Seng constituents are also assigned ESG risk ratings from ESG analytics firm Sustainalytics. Firms with ESG risk ratings that rank in the top 10% of the Hang Seng universe are also removed from the selection pool.
The remaining constituents are initially weighted by float-adjusted market capitalization and then adjusted to increase the weight of stocks with lower ESG risk ratings and decrease the weight of stocks with higher ESG risk ratings.
The index is reconstituted and rebalanced on a quarterly basis.
As of the end of January, the index contained 55 constituents compared to 64 for the parent Hang Seng. Just over one-third (36.1%) of the index was allocated to the financials sector which was broadly in line with the parent index; however, there was notably lower exposure to information technology stocks (18.7% vs. 26.4%) and higher exposure to properties & construction (18.4% vs. 7.7%).
Notable positions included HSBC (8.5%), Tencent (8.2%), AIA (8.2%), HKEX (7.8%), Ping An Insurance (6.1%), and WuXi Biologics (4.5%).
The ETF comes with a management fee of 0.08% and estimated ongoing charges over a year of 0.20%.
Rosita Lee, Chief Executive Officer at Hang Seng Investment Management, said: “Our new HSI ESG Enhanced Select Index ETF not only expands the breadth of our ETF portfolio but is also an excellent example of how to support improved ESG performance among listed companies by making it a tangible and attractive investment opportunity for both institutional and individual investors. They can capture risk-adjusted returns from the performance of companies that actively pursue high ESG standards. Moving forward, we will continue to incorporate ESG concepts into our product development to meet the growing demand from different types of investors.”