Daily ETF Watch: Sustainable Funds Planned

IndexIQ moving into the sustainability space.

Reviewed by: Heather Bell
Edited by: Heather Bell

IndexIQ has filed for seven ETFs—five equity funds and two bond funds—that implement a sustainability-based selection methodology combined with fundamentally and factor-focused weighting approaches.

The equity funds include the following, covering five regions and countries:

  • IQ Candriam Sustainable US Equity ETF
  • IQ Candriam Sustainable World Equity ETF
  • IQ Candriam Sustainable International Equity ETF
  • IQ Candriam Sustainable European Equity ETF
  • IQ Candriam Sustainable Asia Pacific Equity ETF

The fixed-income funds include the following:

  • IQ Candriam Sustainable Corporate Bond ETF
  • IQ Candriam Sustainable Euro Corporate Bond ETF

The former invests in USD-denominated debt, while the latter invests in euro-denominated debt. Both target investment-grade corporate bonds.

Both the equity and fixed-income ETFs will select their components based on Candriam Belgium S.A.’s evaluation methodology, which takes into account firms’ sustainability-related practices and how much they are affected by global sustainability trends, according to the prospectus. From there, the methodology selects the top 70% of the stocks in their respective universes and then thins them out by excluding companies that are in notable violation of the United Nations’ Global Compact or that have unacceptable business lines or business ties.

The equities ETFs’ indexes are weighted in two phases. The first involves financial measures such as earnings, sales, book value, and operating cash flow, which are used to establish an initial weight. After that, each security’s individual weighting is further adjusted based on value, quality and volatility factors.

Like the equity indexes, the fixed-income indexes do not use a cap-based weighting approach. Instead they score individual bonds using valuation, liquidity, quality, momentum, volatility and fundamental factors. The higher the score, the greater the bond’s weighting, while low-scoring issues are given lower weightings or excluded entirely from the index.

The filings did not include tickers, expense ratios or a listing exchange.

Contact Heather Bell at [email protected].

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.