UBS has introduced a new currency-hedged share class for its ETF tracking euro area corporate bonds issued by firms with strong environmental, social, and governance (ESG) characteristics.
The new share class mitigates currency risk between the euro and the US dollar.
The UBS ETF Euro Area Liquid Corporate Sustainable UCITS ETF – USD-Hedged has listed on SIX Swiss Exchange under the ticker CBSEUD SW.
The new share class mitigates currency risk between the underlying euro-denominated bonds and the US dollar.
The ETF’s underlying reference is the Bloomberg Barclays MSCI Euro Area Liquid Corporates Sustainable Index which consists of investment-grade fixed-rate corporate bonds denominated in euros and issued by euro area companies.
To qualify for inclusion in this index, companies must be in the industrial, energy supply, or financial sector and must have an ESG rating of BBB or higher according to MSCI’s sustainability ratings system.
A firm scores higher on the scale if it has strong employee rights, low levels of corruption, and a strong corporate governance structure. It also ranks well if it does not waste resources, it promotes education, safeguards animal rights, and protects the environment.
The methodology underpinning MSCI’s proprietary ESG model also includes a screen to exclude firms linked to alcohol, gambling, tobacco, weapons, pornography, and genetically modified organisms.
The final constituents are then weighted relative to the value of debt outstanding with a maximum 5% cap per issuer.
The new share class comes with an expense ratio of 0.25%, slightly higher than the non-hedged version of the ETF which costs 0.20%.
The fund, which is also listed on London Stock Exchange, Xetra, and Borsa Italiana, has grown to approximately €1 billion in assets under management since its launch in January 2017.
The ETF’s success reflects the broader popularity of ESG-related investment funds in recent years with investors flocking to these products for ethical considerations and, in part, on the premise that incorporating ESG criteria can potentially lead to superior long-term return prospects.