The ETF of 2021 so far

USCR has seen $5.5bn inflows so far this year

Tom Eckett

a man wearing a black jacket

In Europe, one ETF stands head and shoulders above the rest and is another sign of the growing shift towards ESG investing in fixed income.

According to data from ETFLogic, the SPDR Bloomberg SASB U.S. Corporate ESG UCITS ETF (USCR) has seen a monstrous $5.5bn inflows so far this year, the most across all European-listed ETFs by some distance, as at 25 April.

USCR tracks the Bloomberg SASB US Corporate ESG Ex-Controversies Select index which offers exposure to a basket of 2,570 securities at a cost of just 0.15%.

It is highly likely the majority of these flows came from one investor executing over a number of weeks in February, another example of the increasing institutional demand for ETFs.

As Jose Garcia-Zarate, associate director, passive strategies research, at Morningstar, said: “This has all the hallmarks of being a one-off large investment from an institutional investor, not least as all the money came in bulk in the month of February, but it nonetheless goes to show that ESG fixed-income ETFs are starting to make important inroads with investors.”

Fixed income and ESG are very much seen as the two major growth areas in ETF land over the next decade so combining the two is something many issuershave been pushing recently.

The European ETF industry has been patiently waiting for fixed income ESG ETF demand to lift off and USCR’s flows this year are a sure sign of the shift taking place.

While the ETF has topped the inflows charts, at the other end of the spectrum, the iShares $ Corp Bond UCITS ETF (LQDE) has seen $2.2bn outflows, the highest across all European-listed ETFs, highlighting the stickiness of ESG assets compared to their non-ESG counterparts.

This was also highlighted in March 2020 when ESG ETFs in Europe saw €730m inflows despite overall ETFs in Europe seeing a record €22bn over the same period, according to data from Morningstar.

Matteo Andreetto, head of SPDR ETF business, EMEA, at State Street Global Advisors (SSGA), who is speaking at ETF Stream’sETF Ecosystem Unwrapped event next month, said investor confidence in the resilience of fixed income ETFs following the coronavirus turmoil last March has coincided with a surge in demand for ESG.

“Some of this interest was due to investors’ finally put aside long-term concerns that ESG investing requires a performance sacrifice,” Andreetto continued. “The performance of ESG offerings, especially during market downturns like 2020, demonstrates both the short and long-term advantages of ESG exposure in fixed income.”

Whether USCR can continue to gather huge assets remains to be seen, however, its demand could be the start of the structural shift to fixed income ESG ETFs.