Industry Updates

VanEck proposes ESG index switch on US wide moat equity ETF

MOAT would become Article 8 under the proposed changes

Theo Andrew

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VanEck is seeking the approval of investors to switch the index of its US equity ETF to one that tracks environmental, social and governance (ESG) metrics.

Under the proposed changes, the $573m VanEck Vectors Morningstar US Wide Moat UCITS ETF (MOAT) would move from tracking the Morningstar Wide Moat Focus index to the Morningstar US Sustainability Wide Moat Focus index.

Following the switch, MOAT is not expected to adjust its total expense ratio of 0.49% and will be classified as Article 8 under the EU’s Sustainable Finance Disclosure Requirements (SFDR).

The new index will continue to use Warren Buffet’s wide moat concept – companies considered to have sustainable competitive advantages over their peers – with an ESG screening approach applied.

MOAT will offer exposure to 40-80 companies and will exclude those in sectors including chemical and conventional weapons, thermal coal as well as companies who make 50% of their revenue from tobacco or that are ranked ‘severe’ by Sustainalytics.

In addition, the index will exclude companies with a carbon or Sustainalytics rating of 30 or higher.

A momentum screen will also be applied to the index, in which the worst 20% of stocks in the index will be screened out to avoid the “value trap”. The ETF will also have a liquidity screen, excluding companies with a three-month average daily trading value of less than $5m.

Top 10 holdings in the sustainable index include Alphabet (3.2%), Microsoft (3.1%), Salesforce.Com (2.9%), Adobe (2.8%) and Nike (2.7%).

Notable absentees from the previous index include Wells Fargo (2.9%), Tyler Technologies (2.9%) Cheniere Energy (2.9%).

In a notice to shareholders, VanEck said: “The proposed amendment is being proposed as part of the company’s continuous review of its existing product range and due to increased demand for ESG compliant investments.

“The company believes the new index, which consists of companies that meet certain minimum ESG standards, will increase its sustainable footprint by focusing its investment strategy on sustainable investment strategies.”

The proposals will go to a shareholder vote on 3 December and, if approved, will switch on 17 December.

It would see the index become available to European investors for the first time following the launch of the VanEck Morningstar ESG MOAT ETF (MOTE) in the US last month.

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