Industry Updates

Lyxor swaps US large and mid-cap ETF to ESG index

USAL will also become a physically-replicated ETF

Theo Andrew

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Lyxor has become the latest issuer to switch the index of one of its ETFs to one tracking environmental, social and governance (ESG) metrics while slashing fees on the product. 

From 7 October, the £600m Lyxor MSCI USA UCITS ETF (USAL) will be renamed the Lyxor MSCI USA ESG UCITS ETF – under the same ticker – as the group looks to green up its portfolio.  

USAL will track the MSCI USA ESG Broad Select Net Total Return index, an ESG tilted version of its parent index, the MSCI USA.

As well as the index swap, USAL will see its total expense ratio (TER) more than halved from 0.25% to 0.09%.

In addition, USAL has been changed from a synthetic to a physically-replicated ETF. It currently has a total expense ratio (TER) of 0.25%. 

Constituents of the new index will be selected from the parent index of large and mid-cap US stocks, with the exclusion of tobacco companies. 

Businesses with an MSCI ESG Controversies score of below three will also be excluded, while those with a score of below two will be removed at each quarterly review.  

The index will not be market-cap weighted. Instead, stock weightings will be determined through optimisation factors including tracking error, sector variation and turnover.  

The ESG tilted index has marginally outperformed its parent index to the end of September, returning 17.3% versus 14.9%, respectively. 

Notable exclusions from the top 10 holdings in the MSCI USA ESG index include Amazon, Facebook, JP Morgan Chase and Johnson & Johnson which sit third (3.8%), fourth (2.1%), ninth (1.3%) and tenth (1.1%) in the parent index, respectively. 

Commenting on the switch, a Lyxor spokesperson told ETF Stream: "In order to accompany the growing investor demand for ESG solutions, we decided to switch to an index which is built to increase the ESG score, reduce carbon intensity by 30% while at the same time removing companies involved in serious controversies or in controversial activities."

The firm added that the ESG index is designed to have a tracking error of 0.5% to help investors "move significant assets while still being exposed as close as possible to the parent index".

Last month, DWS switched the index of its Europe mid-cap ETF, renaming it Xtrackers MSCI Europe ESG Screened UCITS ETF (XUEM), while BNP Paribas Asset Management did the same to its French equity ETF, now known as the BNP Paribas Easy CAC 40 ESG UCITS ETF (E40). 

In August, DWS added an ESG filter to nine of its Europe sector ETFs along with swapping index providers from STOXX to MSCI.

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