Nuveen, an operating division of TIAA Global Asset Management, has launched a new fixed income ETF in the US.
Jordan Farris, Managing Director and Head of ETFs at Nuveen.
The Nuveen ESG High Yield Corporate Bond ETF (NUHY US) is an industry-first in that it is currently the only US-listed ETF to provide exposure to high yield corporate bonds while factoring in environmental, social, and governance (ESG) considerations.
The fund has listed on NYSE Arca and comes with an expense ratio of 0.35%.
According to Nuveen, the fund was developed in response to demand from investors with responsible investment mandates for a higher income bond vehicle and portfolio diversifier.
Jordan Farris, Managing Director and Head of ETFs at Nuveen, said, “We are pleased to continue our tradition of product innovation with the launch of the industry’s first high yield corporate bond ESG ETF. The Nuveen ESG High Yield Corporate Bond ETF seeks the dual objectives of offering investors competitive income while remaining consistent with environmental, social, and governance values.”
The fund is linked to the Bloomberg Barclays MSCI US High Yield Very Liquid ESG Select Index which selects constituents from a universe of fixed-rate, US dollar-denominated, taxable corporate bonds that were issued in the past five years and have a remaining maturity of at least one year and an outstanding face value of $500 million or more.
Bonds must be non-investment grade as determined by the middle rating of Moody’s, Standard & Poor’s, and Fitch.
The universe is then screened according to an ESG-focused methodology that was designed by MSCI and Nuveen’s Responsible Investing team.
Firstly, companies operating in controversial areas like alcohol, tobacco, gambling, weapons, or nuclear power are removed from the selection pool. The index also includes an explicit low carbon screen by excluding firms with high fossil fuel reserves.
Companies are then assigned ESG scores based on an industry-specific analysis with firms not meeting a minimum threshold being removed. Eligible securities are then market value-weighted within each sector, with sector weights adjusted to mirror that of the parent universe.
Within each sector, constituents are then sorted into a series of groups according to credit rating and ESG score. The index uses an optimization process to reallocate weight to each group, seeking to maximize the index’s ESG rating with consideration for market value, sector representation, credit quality, and tracking error, all relative to the parent universe.
Nuveen offers a comprehensive range of ESG ETFs. Its suite also includes US equity (large, mid, and small-cap as well as large-cap growth and value), international equity (developed and emerging markets), and investment-grade aggregate bond funds.