Industry Updates

DWS plans ESG switch on global aggregate bond ETF due to low demand

Theo Andrew


DWS is set to switch the index on its global aggregate bond ETF to one that tracks environmental, social and governance (ESG) metrics due to flailing demand.

In a note to shareholders, the $687m Xtrackers Global Aggregate Bond Swap UCITS ETF (XBAG) is set to switch from tracking the Bloomberg Global Aggregate Bond index to the Bloomberg MSCI Global Aggregate Sustainable and SRI Currency Neutral index.

As a result, XBAG will change its names to Xtrackers ESG Global Aggregate Bond UCITS ETF under the same ticker and total expense ratio of 0.15%.

The ETF will be classified as Article 8 under the Sustainable Financial Disclosure Regulation.

Based on the previous index – the parent index – the ETF will exclude issuers that do not fulfil specific ESG requirements, including those with insufficient MSCI ESG ratings, those deemed severely controversial and businesses whose activities are “inconsistent with certain social responsibility criteria”.

Taking on the Global Aggregate Bond index ‘beast’

It will also exclude issuers that generate more than 0% revenue from thermal coal, oil and gas or 10% from tobacco.

In addition, it will exclude any issuers that generate more than 10% or more electricity from thermal coal or 30% from nuclear power.

Following the switch, the ETF will go from largely holding 90.2% in government bonds to 54.8% and from 7% in corporate bonds to 19.2%.

DWS said the switch is expected to take place between January and April 2022.

The update said: “The change to the new reference index is proposed due to low demand in the sub-fund while tracking the current reference index. The board of directors deems it to be in the best interests of the shareholders to restructure the sub-fund to reflect the new reference index.”

The German asset manager is the second ETF issuer in Europe to offer exposure to a global aggregate bond index with an ESG tilt. In August, BlackRock launched the iShares Global Aggregate Bond ESG UICTS ETF (AGGE) which tracks the Bloomberg MSCI Global Aggregate Sustainable and Green Bond SRI index.

Last month, DWS added an ESG filter and cut fees on six ETFs as it continues to green up its range. It also delayed planned fee cuts and index switch on its £42m Xtrackers FTSE All-World ex UK UCITS ETF (XDEX) to ensure “operational aspects” are in place.

In August, the issuer added an ESG filter to nine of its Europe sector ETF, swapping the index provider from STOXX to MSCI.

The nine ETFs also become fully replicated and started engaging with securities lending, making it one of the first ESG ETFs in Europe to do so.

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