Artificial Intelligence/ESG: Invesco Launches Corporate Bond ESG Multi-Factor ETFs In Europe

The new ETFs are actively managed and focused on Euro-denominated corporate bonds.

Two new ETFs from Invesco that allow investors exposure to corporate bonds across a range of maturities have been listed on the Deutsche Börse Xetra. The actively managed ETFs will invest in bonds that pass ESG criteria and selected using a multi-factor approach. (ETF Strategy)

Invesco EUR Corporate Bond ESG Multi-Factor UCITS ETF (Acc: ECMA GY; Dist: ECMF GY)

This broad maturity ETF, which has an expense ratio of 0.19%, is benchmarked against the Bloomberg Euro Corporate Bond Index which consists of fixed-rate euro-denominated corporate bonds from global issuers with investment-grade credit ratings.

Eligible issues must have at least €300 million par outstanding.

Invesco EUR Corporate Bond ESG Short Duration Multi-Factor UCITS ETF (Acc: ECMS GY)

ECMS, the short-maturity ETF is benchmarked against the Bloomberg Euro Corporate Bond 1-5 Year Index which has the same eligibility requirements but consists solely of bonds with remaining maturities between one and five years. This ETF has an expense ratio of 0.15%.

Common features of both ETFs

  • Each ETF may invest up to 30% of its assets in unsecured corporate bonds denominated in currencies other than the euro with the currency risk hedged back to euros at Invesco’s discretion.
  • Securities are selected for each ETF based on their compliance with ESG criteria as well as their attractiveness according to Invesco’s quantitative investment model.
  • Violators of international norms as well as companies involved in nuclear power, coal, oil & gas, controversial weapons, military weapons, civilian firearms, tobacco, stem cell research, and genetic engineering will be ineligible for selection.
  • Due to the socially responsible screening, each ETF is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).

Paul Syms, Head of EMEA Fixed Income ETF Product Management at Invesco: “Fixed income has become much more interesting this year. Yields on European credit are at the highest levels we’ve seen in a decade due to a combination of higher interest rate expectations and wider spreads over government bonds. Fixed income investors have more to consider now than in recent years, especially if they have sustainability as well as financial objectives. Our newest ETFs allow investors to position their portfolio to reflect their own economic views, either investing across the full maturity curve if they believe yields are close to peaking or focusing on short maturity if they are concerned interest rates could rise further than is currently being priced into the market.”

Erhard Radatz, Senior Portfolio Manager, Invesco Quantitative Strategies: “Introducing ESG principles into a corporate bond portfolio typically means sacrificing yield relative to a standard non-ESG benchmark. That is due partly to the exclusion of traditionally higher-yielding segments and because issuers that are reducing their ESG-related risks tend to be higher quality and, therefore, offer lower yields. You could address the yield shortfall by overweighting issuers with lower credit ratings, but that may not be in investors’ best interest. Instead, we use a factors-based approach to re-establish characteristics such as duration and credit risks so that the ESG portfolio is more aligned with the standard benchmark.”

Related Story: BlackRock Launches Paris-Aligned Corporate Bond ETF On Xetra

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