Industry Updates

DWS terminates Europe energy ESG ETF after MSCI index changes

The index will be left with an ‘extremely small number of constituents’

Theo Andrew

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DWS is shutting its European energy ESG ETF after changes by MSCI to tighten the sustainability metrics of its index means it no longer meets UCITS requirements.

The German asset manager said it is terminating the £62.3m Xtrackers MSCI Europe Energy ESG Screen UCITS ETF (XSER) after changes will leave it with an “extremely small number of constituents” following the index rebalance on 1 March.

DWS did not state how many stocks would remain in the MSCI Europe Energy ESG Screened 20-35 Select index but told shareholders it would no longer be an adequate benchmark for the market as required under the UCITS regulation.

Under the requirements, a maximum of 10% of a UCITS fund’s net assets may be invested in securities from a single issuer while investments of 5% with a single issuer may not make up more than 40% of the portfolio.

It comes as MSCI implemented a raft of changes to tighten the metrics on its ESG Screened index range including new ESG-driven revenue screens, additional exclusion criteria and a greenhouse gas intensity reduction target, which also impacted BlackRock’s $15bn ESG screened ETF range.

The index provider said it was looking to strengthen the suite’s ESG credentials to reflect regulatory development in Europe.

However, the impact of the changes on its Europe energy ESG index means it is no longer trackable for UCITS funds.

“While the board of directors is supportive of changes which enhance the sustainability features of ESG indices in general, in this situation the implementation at the level of the reference index would result in the majority of current constituents, which are closely associated with the European energy market, being removed, thereby leaving the reference index with an extremely small number of constituents,” DWS said.

“As of the index rebalancing date, the board of directors consider that the benchmark will no longer represent an adequate benchmark for the market to which it refers as required under UCITS requirements and would not consider it to be in the best interests of shareholders to continue to reflect its composition.”

It added there was no suitable reference index for the ETF to switch to. As a result, DWS said it would be terminating the ETF on 14 March.

Following the rebalance, the asset manager said it would reflect “as far as possible” the portfolio of the index prior to the changes in order for shareholders “not to be exposed to an inadequate benchmark”.

In September 2021 XSER switched to tracking its current index from the Stoxx Europe 600 Oil and Gas index.

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