Today, Northern Trust’s FlexShares arm had its biggest launch in years, with the rollout of four ESG ETFs that cover core asset classes. The funds track indexes that rely on the issuer’s rigorous in-house methodology for evaluating companies according to ESG and climate standards. They and their expense ratios are as follows:
- FlexShares ESG & Climate US Large Cap Core Index Fund (FEUS), 0.09%
- FlexShares ESG & Climate Developed Markets ex-US Core Index Fund (FEDM), 0.12%
- FlexShares ESG & Climate Investment Grade Corporate Core Index Fund (FEIG), 0.12%
- FlexShares ESG & Climate High Yield Corporate Core Index Fund (FEHY), 0.23%
All four ETFs list on the NYSE Arca.
Northern Trust’s Head of Funds & Managed Accounts, Darek Wojnar, emphasizes that his firm’s approach draws from a wide array of data sources, and that the ESG indexes underlying all four funds maintain similar risk and return characteristics to the broad asset classes they represent.
“We're trying to ensure that during the optimization process we do not deviate or depart meaningfully from the market-capitalization-based risk/return characteristics. There are meaningful constraints on the security weights, sector weights, industry weights,” he said. “It doesn't really deviate meaningfully from market-cap approaches, thereby lending [to the funds serving as] core portfolio solutions for investors.”
The methodology associated with all four ETFs seeks to maximize ESG scores while reducing carbon risk. It also excludes companies that violate certain established international initiatives or are involved in industries such as tobacco, weapons, military contracting or coal from the index.
Northern Trust’s approach incorporates, on an individual company basis, its in-house ESG Vector Scores, which are based on criteria established by the Sustainable Accounting Standards Board that is designed to identify companies with strong sustainability features while limiting sustainability risks. The final score also includes a distinct corporate governance score for each company that has a 20% weighting in the overall Vector score, the prospectus says.
The climate component considers carbon emissions, carbon footprints and potential carbon-related risk in arriving at an overall rating, according to the document.
Although an ETF covering the emerging markets space remains in registration, the four funds launched today cover four core asset classes at prices comparable with or less than many corresponding conventional funds. FEUS’ expense ratio, for example, matches that of the SPDR S&P 500 ETF Trust (SPY), while the cost of FEHY is less than half of the 48 basis points charged by the $19 billion iShares iBoxx USD High Yield Corporate Bond ETF (HYG).
Northern Trust has 27 other existing ETFs with total assets under management of $19 billion.
Contact Heather Bell at [email protected]