Smart beta specialist Ossiam has expanded its environmental, social and governance (ESG) range with the launch of a low carbon multi-factor ETF.
The Ossiam US ESG Low Carbon Equity Factors UCITS ETF (OUFE) is listed on the London Stock Exchange with a total expense ratio (TER) of 0.45%.
OUFE selects large, mid and small caps from the US market based on their ESG characteristics and factor scores.
It filters the 80% best ESG-rated stocks from a basket of US equities for each industrial sub-sector and then applies several exclusion filters for companies involved with controversial weapons, have operations in the tobacco or coal industries, are in breach of at least one of the Ten Principles of the UN Global Compact or have more than 20% of their production in coal-fired plants.
The remaining stocks are used to build two portfolios – a stock factor portfolio and a sector factor portfolio – which are equally weighted in the strategy.
For the stock factor portfolio, individual stocks are screened for exposure to four equity factors; value, momentum, size and volatility, and their lower carbon footprint.
For the sector factor portfolio, the strategy uses value and momentum factors. The sectors’ benchmark weights are increased or reduced to optimise the exposure to these factors and to reduce their total carbon footprint by 40%.
Bruno Poulin (pictured), CEO of Ossiam, commented: "The launch of our latest ETF exploits the strength of evidence for equity factors as a means of achieving alpha over the long term.
“We believe that a static approach to factor investing is inefficient. Our dynamic approach recognises the existence of factors at both sector and stock level, which complement each other under different market conditions. On that basis, our exposure to multiple factors at both levels enhances diversification.”