Alternative Investments: PIMCO’s New ESG-Focused ETF
Bond giant PIMCO has launched RAFE, a smart beta ESG ETF.
Here’s another environment-social-governance (ESG) focused ETF from PIMCO, the leading fixed-income fund house. Offered in collaboration with Research Affiliates, the Pimco RAFI ESG US ETF RAFE will track the Research Affiliates RAFI ESG U.S. Index.
Research Affiliates RAFI ESG U.S. Index
The Pimco RAFI ESG US ETF RAFE will track the Research Affiliates RAFI ESG U.S. Index which will be computed as follows.
This index seeks to outrank US large and midcap companies’ indices that use market-capitalization. However, the index gives higher weight to companies that are performing well on the count of ESG and diversity. For this Research Affiliates uses the data provided by Vigeo Eiris, a third-party ESG data and rating provider.
Companies with a “mix of gender, ethnicity, experience, age, and culture…tend to make better decisions because they can achieve a higher level of Collective Intelligence,” says Research Affiliates.
Furthermore, Research Affiliates calculates the financial discipline score that identifies companies with high profitability, low investment, low issuance, and low accruals. The index also uses the firm’s Fundamental Index approach to incorporate a smart beta strategy based on contrarian indexing and rebalancing.
Research Affiliates then sorts companies based on ESG, diversity, and financial discipline scores. It excludes industries such as tobacco, gambling, weapons—civilian firearms and military—fossil fuels, coal, tar sands, and oil shale if these appear in the Vigeo Eiris list.
Finally, companies are weighted by their fundamental ranks and adjusted with ESG and diversity scores.
The Pimco RAFI ESG U.S. ETF RAFE
The Pimco RAFI ESG U.S. ETF RAFE is the third in its line-up of ESG-focused funds. Previously, it launched the Pimco Climate Bond fund (ticker: PCEBX) and the Enhanced Short Maturity Active ETF (EMNT).
Investors have been shoveling money into ESG funds. This year inflows into ESG funds have topped $7 billion in assets in 2019. That compares to less than $2 billion in each of 2017 and 2018.
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