Invesco has launched an S&P 500 ETF with an environmental, social and governance (ESG) tilt,
The Invesco S&P 500 ESG UCITS ETF (SPXE) is listed on the London Stock Exchange with a total expense ratio (TER) of 0.09%.
Tracking the S&P 500 ESG index, SPXE aims to offer investors stronger ESG and carbon intensity scores versus the parent index while maintaining the overall sector exposures.
The index includes the top 75% of companies in each industry group ranked by their S&P Dow Jones Index ESG score.
It also excludes companies involved in tobacco, controversial weapons or have a low United Nations Global Compact score.
This leaves an index of 311 companies that are subsequently weighted by market cap.
Synthetically replicated, SPXE aims to replicate the index through swap contracts. The firm said this method enables them to deliver more consistent performance versus full physical replication.
US equity ETFs, synthetically replicated, capture the dividends on the index constituents gross of tax while physically-backed ETFs in this asset class have to pay dividend withholding tax.
Chris Mellor, head of ETF equity and commodity product management at Invesco, explained: “Using swaps to gain exposure to certain US large-cap equity indices – including this one – enables the ETF to capture gross dividends, with no withholding tax.
“This offers a clear advantage over physically replicating ETFs, which are subject to as much as 30% withholding tax on dividends.”
Gary Buxton (pictured), head of EMEA ETFs at Invesco, added: “The more we speak with different investors about ESG, the more we appreciate the extent to which their objectives may vary.
“As ESG becomes more mainstream, we believe that finding appropriate solutions is going to be increasingly relevant, for example for trustees and other investors who have a fiduciary responsibility for delivering performance.”
Reid Steadman, global head of ESG indices at S&P Dow Jones Indices, said: “As more mainstream investors incorporate ESG into their core portfolios, S&P Dow Jones Indices is committed to offering global market participants ESG indices, data and analytics to better align investors’ investments with their values.”
The launch of SPXE comes a week after Invesco unveiled a similar product in Canada, the first of its kind in the country.
In Europe, UBS Asset Management was the first to launch an S&P 500 ETF with an ESG tilt in April 2019, the UBS S&P 500 ESG UCITS ETF (5ESG). However, SPXE is three basis points cheaper than 5ESG.