UBS Asset Management has launched a new broad commodities ETF designed for ESG-oriented investors.
The ETF provides broad commodities exposure while delivering an enhanced ecological and social profile.
The UBS ETF – CMCI Commodity Transition SF UCITS ETF has been listed on SIX Swiss Exchange in US dollars (Ticker: RENEW SW) and on Deutsche Börse Xetra in euros (BCFC GY).
The fund is linked to the recently developed UBS CMCI Sustainability Transition Index which is created from the parent UBS Constant Maturity Commodity Index (CMCI).
The CMCI delivers diversified exposure to 28 commodity futures from across the energy, precious metals, industrial metals, agriculture, and livestock sectors. Individual commodities are assigned target weights, updated annually, according to their economic significance and market liquidity.
Notably, compared to traditional broad commodity indices, the CMCI also introduces a time element by diversifying across contract tenors ranging from three months up to a maximum of three years. Specifically, the CMCI weights contract tenors across the curve in accordance with a 75% liquidity and 25% equal weighting rule. The approach aims to minimize the negative roll yield often associated with front-month commodity indices.
The UBS CMCI Sustainability Transition Index, meanwhile, differs from the CMCI by tilting individual commodity weights in favour of those with higher ‘Ecological-Social’ scores as determined by rfu, a provider of sustainable investment research. rfu’s framework considers the full lifecycle of a commodity from exploration and extraction to processing and utilization.
The Ecological pillar considers aspects such as the commodity’s climate impact during production, its recycling rate, and its level of toxicity on humans and the environment. It also factors in positive environmental utilizations, however, such as whether a commodity is a key input in renewable energy production, for example.
The Social pillar, meanwhile, considers risks regarding labour standards, human rights, and community relations in countries where the commodity is produced, but may also factor in positive social impacts such as whether the commodity is used in medical technologies or housing.
According to UBS, as the sustainability characteristics of commodities change relatively slowly compared to individual companies, and are more likely to be seen in the medium term, a commodity’s Ecological-Social score is updated every two years.
The UBS CMCI Sustainability Transition Index aims to deliver a significant improvement in the overall Ecological-Social score compared to the traditional CMCI while simultaneously controlling for liquidity and diversification and minimizing deviations from the CMCI.
Additionally, the index overweights longer-dated tenors for commodities with a higher weight than the CMCI benchmark – the goal being to increase allocation at the back end of the futures curve and enhance liquidity for producers.
The ETF comes with an expense ratio of 0.34%.