Industry Updates

DWS to switch Latin America ETF to ESG index

The decision to switch index comes amid 'low historical demand' for XLMA

Jamie Gordon

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DWS is set to turn its Latin America ETF into an ESG strategy, in a further signal of the increasing demand for sustainable products.

Effective 25 March, the $63.7m Xtrackers MSCI EM Latin America Swap UCITS ETF (XLMA) will change its name to the Xtrackers MSCI EM Latin America ESG Swap UCITS ETF. 

This will coincide with XLMA’s shift from tracking the MSCI Emerging Markets Latin America index to the MSCI EM Latin America Low Carbon SRI Leaders index.

The current index captures 104 large and mid-cap companies across six emerging market (EM) countries in Latin America. Within these countries, the index aims to track around 85% of their respective free float-adjusted market caps. Of this, XLMA aims to indirectly replicate around 10% of the index via swaps.

The new index tracks the performance of Latin American equities with higher ESG performance and lower current and potential carbon exposure than the broader parent index. It achieves this by implementing two rule sets: the Low Carbon Exposure Selection Rules and the Highest ESG Performance Selection Rules.

ESG driving greater collaboration between ETF issuers and index providers

The Low Carbon SRI Leaders index also places a limit on the number of securities eligible for inclusion, and as such, DWS said XLMA may be more heavily weighted towards companies that underperform the market. 

The decision to change the strategy was due to XLMA’s “low historical demand” and increasing demand for ESG EM ETFs.

In recognition of ESG’s popularity, Michael Mohr, head of Xtrackers product development at DWS, said the company has been active in ESG product creation and will continue expanding its roster going forwards.

Mohr said: “Our ESG product suite has been expanded considerably but we continue to add depth to our offering to meet investor demand for low carbon, socially responsible investments.”

As for XLMA, DWS added the product’s fees would remain unchanged but transaction costs and duties arising from the strategic shift will be borne by the ETF.

XLMA is not the first ETF DWS has switched to an ESG index. Last December, ETF Stream revealed its FTSE All-Share ETF would track the MSCI UK IMI Low Carbon SRI Leaders Select index and be renamed the Xtrackers MSCI UK ESG UCITS ETF (XASX).

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