Amundi has become the latest ETF issuer to offer exposure to the S&P 500 ESG index but instead of launching a new strategy, the French asset manager has changed the index of its physically-replicated S&P 500 ETF.

The Amundi S&P 500 ESG ETF (S500) already has $904m assets under management (AUM) making it the second largest S&P 500 ESG ETF on the market behind the $1bn UBS S&P 500 ESG ETF (5ESG) which launched in March 2019.

The changes on the Luxembourg-domiciled ETF have been effective since 9 October.

Investors not wanting to be exposed to the new index were given around five weeks to switch and will realise transaction costs.

As Amundi said in a note to shareholders: “For UCITS ETF share classes, placing an order on the secondary market will trigger costs over which the management company has no influence.”

The French asset manager does have another S&P 500 ETF, the $6.9bn Amundi S&P 500 ETF (500), which is synthetically replicated.

The decision to switch the physical version makes sense as synthetic US equity ETFs realise a performance boost by not having to pay withholding tax on dividends.

Meanwhile, physical ETFs domiciled in Luxembourg pay 30% withholding tax on US equity dividends while Irish-domiciled ETFs pay 15% leaving S500 at a slight disadvantage to its competitors.

The SPDR S&P 500 ESG Screened UCITS ETF (500X) and the Invesco S&P 500 ESG UCITS ETF (SPXE) are both domiciled in Ireland.

Physical ETFs are safer than synthetic ETFs – a misconception?

The S&P 500 ESG index looks to have similar performance to its parent index while excluding tobacco, thermal coal and controversial weapons or companies that score poorly on ESG criteria.

The index then removes the bottom 25% weakest ESG scorers from each GICS sector.

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