Industry Updates

State Street moves US high yield corporate bond ETF to ESG index

SSGA becomes the latest to join the trend of converting vanilla ETFs to ESG rather than creating entirely new strategies

Jamie Gordon

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State Street Global Advisors (SSGA) is set to switch its US junk bond ETF to an ESG index, the latest in a string of ETFs to do so over the past few months.

Effective 29 October, the SPDR Bloomberg Barclays 0-5 Year U.S. High Yield Bond UCITS ETF (SJNK) will be renamed the SPDR Bloomberg SASB U.S. High Yield Corporate Bond UCITS ETF with the same ticker and total expense ratio (TER).

The revamped ETF will now track the Bloomberg SASB US Corporate High Yield ESG Ex-Controversies Select index, a new benchmark created by Bloomberg in partnership with SSGA for SJNK. Previously, SJNK tracked the Bloomberg Barclays U.S. High Yield 0-5 Year (ex 144a) Bond index.

The new index selects securities eligible for the US Corporate High Yield index and excludes issuers involved in extreme event controversies, controversial weapons, United Nations Global Compact violations, civilian firearms, thermal coal extraction and power generation, oil sands extraction, arctic oil and gas exploration and tobacco.

Antoine Lesné, head of ETF investment strategy for EMEA at SSGA, said ESG has moved convincingly into the fixed income mainstream this year, with almost half of the $36bn inflows into bond ETFs in Europe going to the product class.

Lesné added: “We expect to see the trend continue as SFDR brings more clarity on the types of vehicles available and their effectiveness.”

The arrival of the overhauled SJNK follows the launch of SSGA’s two investment grade corporate ETFs in October 2020. One of these was the SPDR Bloomberg US Corporate ESG UCITS ETF (USCR) which gained attention after seeing over $5bn inflows from an institutional investor earlier this year.

Lesné continued: “As investors require more and more instruments to meet various degrees of ESG, developing new funds or adapting existing products to meet investors demand is part of our range management strategy.

“SJNK will follow a similar approach to the two investment grade ETFs.”

This latest switch of a vanilla product into an ESG strategy follows a week in which Lyxor changed its $942m Lyxor MSCI USA UCITS ETF (USIL) and €280m Lyxor China Enterprise UCITS ETF (ASIL) into the Lyxor MSCI USA ESG UCITS ETF and Lyxor MSCI China ESG Leaders Extra UCITS ETF, respectively.

With this trend gathering steam, some pundits are asking whether it is better to do away with vanilla ETFs or create entirely new ESG products and let investors choose whether they prefer the core or ESG version.

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