BlackRock recently expanded its Paris-aligned range with the iShares € Corp Bond ESG Paris-Aligned Climate UCITS ETF (CBUJ), putting it in direct competition with specialist fixed income shop Tabula and its Tabula EUR IG Bond Paris-aligned Climate UCITS ETF (TABC).
Having launched on 8 January 2021, TABC is the older of the two ETFs and has massed $113m since coming to market, according to data from ETFLogic.
Meanwhile, CBUJ debuted on 9 June and has gathered $408m asset under management (AUM) in less than a month, illustrating the David and Goliath comparison between the two issuers.
As the only product of the two with any track record in the field, TABC has returned -12% over the 12 months, as at 29 June.
While the two have been competing side-by-side, it returned 0.8% while CBUJ booked a more modest 0.1% gain in the fortnight to the same date.
BlackRock’s low-cost, no-frills model is reflected in CBUJ’s total expense ratio (TER) which stands at 0.15% and undercuts TABC’s fee of 0.25%.
Exposure and methodology
First looking at Tabula’s offering, TABC has become popular with Tabula patrons, so much so that a number switched over from the Tabula iTraxx IG Bond UCITS ETF (TTRX).
With TABC gathering an additional $15.6m assets so far this year, Tabula announced at the end of June it was closing TTRX.
TABC tracks the Solactive ISS Paris Aligned Select Euro Corporate Bond index of 276 eurodenominated, investment-grade bonds from 130 issuers – that meet the requirements for an EU Paris-Aligned Benchmark (PAB) and 1.5°C scenario.
The benchmark targets a minimum initial 50% reduction in greenhouse gas emissions and a minimum annual reduction of 7% versus its parent Solactive Euro IG index, with this based on Scope 1, 2 and 3 emissions data from ISS ESG.
Additionally, TABC applies a liquidity screen and excludes issuers based on ESG criteria. These include companies in violation of social norms such as the UN Global Compact and those involved in controversial weapons and tobacco, causing significant environmental harm or those with revenue from oil, gas, coal and energy-intensive electricity above a certain threshold.
The ETF is classified as Article 9 under the Sustainable Finance Disclosure Regulation (SFDR) and receives an MSCI AAA ESG rating. Its basket has an average maturity of 4.7 years, a yield to maturity of 2.25% and an average credit rating of BBB.
Unsurprisingly, it weights 46.2% to issuers involved in the financial sector – but interestingly its largest credit exposure by geography is its 27% to the US.
Turning to CBUJ, BlackRock’s ETF uses a sampling methodology to track the Bloomberg MSCI Euro Corporate Climate Paris Aligned ESG Select index of 456 euro-denominated investment-grade corporate bonds with a minimum MSCI ESG Rating of B.
Like TABC, CBUJ meets PAB requirements and its index sets an initial 50% reduction of greenhouse gas emissions and carbon intensity versus the Bloomberg Euro Corporate index, as well as an annual 10% reduction in both measures.
In terms of exclusions, it removes companies with a “red” MSCI ESG Controversy Score and negatively screens issuers involved in business activities restricted under Article 12 of the Delegated Acts, also those involved in nuclear weapons, civilian firearms and unconventional oil and gas.
The index must have a minimum of 20% more issuers setting carbon reduction targets versus its parent benchmark while issuers must also have a weighted average ESG score that is 20% superior. CBUJ has an effective duration of 4.8 years and a weighted yield to maturity of 3.26%.
Overall, BlackRock’s product is larger, lower cost and more diversified – though this likely means its ESG exclusions are less exacting than those applied on Tabula’s TABC.
CBUJ may have some advantages on paper in terms of scale but TABC is a true frontrunner as Europe’s first corporate bond climate ETF. It is also one of the more popular products from a fixed income specialist which is now becoming more focused on climate products in particular.
This article first appeared in ETF Insider, ETF Stream's monthly ETF magazine for professional investors in Europe. To access the full issue, click here