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Xtrackers revamps US corporate bond ETF strategy to embrace ESG values


Xtrackers by DWS has created a new offering for ETF investors with an exchange traded fund providing environmental, social and governance (ESG) derived exposure to short duration US dollar investment-grade corporate bonds.

Xtrackers ESG USD Corporate Bond Short Duration UCITS ETF tracks the Bloomberg MSCI USD Corporate Sustainable and SRI 0-5 Years Index, which reflects the performance of over 1,000 investment-grade, US dollar-denominated, short-duration corporate bonds (with at least one month and up to but not including five years to maturity) excluding securities which do not fulfil specific ESG criteria.

ETFs are exchange-traded investment funds that can be bought and sold like shares. The traditionally follow an established third party index. They are valued by investors because of their low fees compared to actively managed funds. ETFs can be used to create bond market exposure in a portfolio as well as exposure to equities.

The DWS fund has an indicative yield to maturity of around 2.11% and modified duration of 2.4 years (Source: BlackRock Aladdin, as of February 15, 2022).

The index implements strict ESG filters in line with MSCI’s SRI (socially responsible investing) methodology, thereby excluding companies that are rated BB or below by MSCI ESG Research, issuers with an MSCI ESG Controversies score of less than one, those classified as breaching certain thresholds in controversial activities, and companies that have involvement in the defence sector. This leads to the removal of approximately 30% of issuers from the original index (Source: Bloomberg, as of February 1, 2022).

This represents a considerable slice of the ETF’s previous universe and demonstrates how many companies are failing to meet relatively standard ESG screening criteria.

Change of index

The ETF was created by replacing the index of the existing Xtrackers iBoxx USD Corporate Bond Yield Plus UCITS ETF. The index change also sees a reduction in the ETF’s annual all-in fee from 0.25% to 0.16% per annum. The fund currency is USD and there is also a EUR-hedged variant (the annual all-in fee for the EUR-hedged share class is 0.21%).

“Investors can now access high quality short duration ESG USD corporate bond exposure via a competitively priced Xtrackers ETF. We’re pleased to expand our ESG product suite further to meet that demand with this exposure. The addition of ESG filters creates a quality bias, helping improve the product’s risk profile at a moderate cost to yield,” said Michael Mohr, Head of Passive Products at DWS.

Shares in the Xtrackers UCITS ETFs which are purchased on the secondary market cannot usually be sold directly back to the relevant fund. Investors must purchase and redeem such shares on the secondary market with the assistance of an intermediary (e.g. a market maker or a stock broker) and may incur fees for doing so.

In addition, investors may pay more than the current net asset value of a share in a Xtrackers UCITS ETF when buying shares on the secondary market, and may receive less than the current net asset value when selling such shares on the secondary market.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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