Tabula Investment Management has introduced a novel fixed income ETF, the first ultra-short investment-grade euro corporate bond fund to be aligned with the carbon reduction goals of the Paris Agreement.
Tabula now offers four fixed income ETFs tracking Paris-aligned benchmarks.
The Tabula EUR Ultrashort IG Bond Paris-Aligned Climate UCITS ETF (TUCP GY) has been listed on Deutsche Börse Xetra in euros, coming to market with €20 million in initial assets.
TUCP is the fourth Paris-aligned fixed income ETF from Tabula, adding to the firm’s existing line-up which includes a broad maturity investment-grade euro corporate bond ETF, which launched in January 2021; a high yield euro corporate bond ETF, which debuted in February 2022; and a multi-currency ‘fallen angel’ bond ETF, which was unveiled recently in June.
Investment process
TUCP tracks the Solactive ISS Paris Aligned Select 0-1 Year Euro Corporate IG Index which is constructed from an initial universe composed of euro-denominated corporate bonds that have at least €500m outstanding and a time to maturity of no more than one year. An extensive range of bond types are eligible for inclusion, although they must hold a minimum rating of BBB- by Standard & Poor’s or Baa3 by Moody’s.
In keeping with its ethical intentions, the index applies a series of environmental, social, and governance (ESG) screens using ISS data. This includes removing bonds from issuers that are proven violators of UN Global Compact principles, as well as those that sell tobacco, controversial weapons, or those that cause significant environmental harm.
Index weights are then determined by recalibrating the weights of the parent Solactive 0-1 Year Euro Corporate IG Index as necessary to achieve an immediate 50% reduction in overall greenhouse gas intensity (calculated as greenhouse gas emissions divided by the book value of the equity and debt of the issuing companies).
The index also incorporates a decarbonization objective that ratchets the intensity of greenhouse gas emissions of the portfolio down by 7% annually, a trajectory that is consistent with the Paris Agreement target of limiting global warming to 1.5°C above pre-industrial levels by 2050.
The environmental and ethical focus of the strategy ensures the ETF is compliant with Article 9 standards of the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
The index methodology is also subject to various secondary constraints, subordinate to the primary objective of Paris alignment, that are designed to control risk and ensure that the index maintains a strong correlation with traditional investment-grade ultra-short euro corporate bond benchmarks.
According to Tabula, as of 10 October, the index demonstrated a 12-month gross yield of 4.3%, a duration of approximately 0.4 years, less than 1 basis point of daily volatility, and an average credit rating of ‘A’.
The ETF comes with an expense ratio of 0.15%.
Commenting on the new ETF listing, Michael John Lytle, CEO of Tabula Investment Management, said: “Tackling climate change is the defining issue of our age and a major risk to all investment portfolios. Meeting the goals of the Paris Agreement requires a multi-pronged approach. Investors must combine targeted allocations to specialist climate solutions with a shift of large asset pools into broad climate-friendly investments.
“TUCP is the first Paris-aligned ultrashort product and joins our existing stable of euro investment grade, global fallen angels, and euro high yield Paris-aligned funds. The latest launch shows our commitment to providing investors with SFDR Article 9 exposures across the fixed income spectrum.”