Industry Updates

DWS tightens exclusion standards on three corporate bond ETFs

At least 20% will be excluded from the investment universe

Theo Andrew

ESG impact seed funding

DWS is set to tighten the exclusion criteria on three corporate bond ESG ETFs to ensure a certain percentage of companies of the investment universe are screened out.

Effective 28 February, the £64.9m Xtrackers ESG USD Corporate Bond UCITS ETF (XZBU), the £155.6m Xtrackers ESG EUR Corporate Bond Short Duration UCITS ETF (XZE5) and the £27.9m Xtrackers iBoxx USD Corporate Bond Yield Plus UCITS ETF (XYLD) will all have additional ESG standards added.

The three ETFs already implement an ESG screening approach, excluding companies that are not currently rated by MSCI research, have low or red-flagged ratings, or that breach certain revenue thresholds or are associated with weapons, oil and gas, thermal coal or any fossil fuel reserves.

Following the changes, if after the initial screens have been applied less than 20% of the investment universe has been excluded, the remaining bond issuers will be ranked via MSCI ESG rating scores and the lowest ranking screened out until the 20% exclusion threshold has been met.

In addition, DWS said XYLD will be renamed the Xtrackers ESG USD Corporate Bond Short Duration UCITS ETF after it announced it would be switching the index from tracking the Markit iBoxx USD Corporates 1-20 Year Plus index to the Bloomberg MSCI USD Corporate Sustainable and SRI 0-5 Years index.

The ETF also saw its fees slashed from 0.26% to 0.16% following the switch.

All three of the ETFs are classified as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR).

It is the latest change to the group’s ESG product range in the fixed income space following several other index switches and fund closures.

Last November, the group said it was going to switch the index on the $687m Xtrackers Global Aggregate Bond Swap UCITS ETF (XBAG) metrics due to flailing demand.

In the same month, the group said it was closing two fixed income ETFs and closing the share class on another due to their “permanently low levels” of demand.

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