Nomura Asset Management has launched a new ETF providing exposure to Japanese companies with robust environmental, social, and governance (ESG) characteristics.
The fund provides broad Japanese equity exposure while targeting the best ESG performers from each GICS sector.
The NEXT FUNDS MSCI Japan Country ESG Leaders Index ETF (2643 JP) has been listed on Tokyo Stock Exchange (TSE) and comes with an expense ratio of just 0.12%.
The fund is linked to the MSCI Japan Country ESG Leaders Index which selects its constituents from the MSCI Japan IMI Top 700 Index universe of large and mid-cap stocks listed on TSE.
The methodology first excludes companies embroiled in severe ESG-related controversies as well as firms with business operations linked to alcohol, gambling, tobacco, nuclear power, weapons, fossil fuels extraction, or thermal coal power.
The remaining constituents are assigned sustainability scores from MSCI ESG Research which reflect its ESG performance relative to sector peers. The methodology selects the companies with the highest ESG scores while targeting 50% of the market capitalization within each GICS sector of the parent index.
Constituents are weighted by float-adjusted market capitalization. The index is reconstituted annually in May and rebalanced on a quarterly schedule.
The index consists of 138 stocks (compared to 700 for the parent universe) with the largest sector exposures being industrials (19.8%), consumer discretionary (17.8%), information technology (13.4%), health care (12.0%), and communication services (8.5%).
Notable positions include Sony (5.8%), Recruit Holdings (3.2%), Nintendo (3.1%), Tokyo Electron (3.1%), and Shin-Etsu Chemical (2.8%).
There is currently only a handful of ETFs listed on TSE that provide broad Japanese equity exposure while screening or tilting the portfolio in consideration of ESG factors.
Last month, Global X launched the Global X Japan Global Leaders ESG ETF (2641 JP) which tracks the FactSet Japan Global Leaders ESG Index and comes with an expense ratio of 0.28%.
The most seasoned fund is One Asset Management’s One ESG ETF (1498 JP) which debuted in September 2017. This fund tracks the FTSE Blossom Japan Index, houses ¥12.9 billion ($120 million), and costs 0.13%.