Product Panel: Northern Trust enters Europe with two ESG ETFs

The ETF issuer has partnered with STOXX to create custom-built indices

Tom Eckett

a group of men in suits

ETF Stream’s Product Panel has weighed in on Northern Trust Asset Management’s entrance into the European ETF market earlier this week.

The US asset manager kicked off life this side of the pond with the launch of two strategies that combine ESG and smart beta, the FlexShares Developed Markets Low Volatility Climate ESG UCITS ETF (QVFD) and the FlexShares Developed Markets High Dividend Climate ESG UCITS ETF (QDFD).

The firm has partnered with STOXX to create custom-built indices that tilt towards companies prepared for the transition to a low carbon economy.

Marie Dzanis, head of EMEA at Northern Trust, commented: “Actively designed with the transparency of indexing, these two ETFs are built specifically to fit within EMEA investors’ evolving needs to help manage portfolio volatility and deliver income in a low yield environment while doing so with a focus on quality.”

Andrew Limberis (pictured left), senior investment manager, Omba Advisory & Investments

It is great to see new issuers coming to Europe with some innovative products, especially when these products are not just a European version of an existing US-domiciled ETF. ESG, with an innovative methodology, is a great way to launch into Europe at the moment.

Increasingly, a real challenge for investors is to make sure they understand an ETF’s methodology as products move further away from the traditional market cap-weighted approach. While some measures of high dividend yield and low volatility have experienced mixed historic track records, these two ETFs appear to offer a far more nuanced approach to the traditional factor framework, with the added benefit of being an ESG product.

Athanasios Psarofagis (pictured centre), ETF analyst, Bloomberg Intelligence

I guess this was just a matter of time before more large US ETF issuers entered the European market and Northern Trust has a pretty well established UCITS business here already.

One thing to note is US ETF issuers have struggled to grow in the US and Northern Trust, in particular, has seen most of its success through its own adviser distribution channel.

I suspect they will stay down the middle of the road in terms of strategies, offering up ESG exposures and factor-based ETFs. Nonetheless, it is great to see more new entrants to the European ecosystem.

Fabrizio Zumbo (pictured right), associate director, European asset and wealth management research, Cerulli Associates

Although the European ESG ETF market has seen a growing number of active players entering the space and a high level of product innovation has been a characteristic of this segment in the last two years, demand for “hyper-tailored” indices in the ESG domain continues to grow.

In this context, the relationship between index providers and ETF issuers is also changing, with some players developing bespoke benchmarks in partnership with index providers to create more tailored passive ESG products needed by European investors.  

The two smart beta ESG strategies launched by Northern Trust are in line with the evolving demand of European investors and add more specialised options to the menu for those looking to incorporate climate factors into their passive investments in a more transparent manner.

As the quality of data improves and technology makes it easier to process and analyse non-financial information, we will see new ESG-themed benchmarks coming to the market. Our research also shows that 57% of ETF issuers surveyed in Europe see building self-indexing proposition as an opportunity.


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