Daiwa launches Japan ESG ETF tracking FTSE Blossom index

Sep 26th, 2017 | By | Category: Equities

Daiwa Asset Management has launched the Daiwa ETF FTSE Blossom Japan Index (1654) on the Tokyo Stock Exchange. The ETF tracks the FTSE Blossom Japan Index, which provides exposure to Japanese equities that display strong environmental, social and governance (ESG) practices.

Daiwa launches Japan ESG ETF tracking FTSE Blossom index

The FTSE Blossom Japan index features industry-neutral weightings to minimise sector bias versus its parent index.

The index aims to give investors a similar performance to the FTSE Japan Index but only by investing those companies from the index with high ESG credentials.

While the index hasn’t been around for long, initial results seem to indicate it is fulfilling its objective with performance in line with the parent index – over the past year, the FTSE Blossom Japan index has returned 24.0% with volatility of 14.1%, while the FTSE Japan Index has returned 22.4% with volatility of 13.6%.

The index is constructed using the FTSE Japan Index as its starting point. Each company in this universe is given a rating from zero to five using FTSE Russell’s ESG Ratings data model, which draws on international ESG standards including the UN sustainable development goals. Companies with a rating of 3.1 and above are included in the index, a figure aligned with the established FTSE4Good Index series.

Evan Ong, managing director, Asia ETP and listed derivatives strategy and business development, FTSE Russell, commented: “We are delighted that Daiwa Asset Management has selected the FTSE Blossom Japan Index for its ESG ETF. We continue to see a growing interest to integrate ESG considerations into passive investments, which we believe will help increase corporate transparency and performance”.

At present, the index comprises 151 companies, compared to 493 in the FTSE Japan. The largest individual component in the index is Toyota, with a weight of 7.1%, followed by Mitsubishi and East Japan Railway with weights of 3.4% and 2.9% respectively.

The index is designed not to deviate significantly from its traditional market cap-weighted benchmark and as such features an industry-neutral weightings approach to match weights to the underlying FTSE Japan to minimise industry bias.

As such, consumer goods is the largest sector exposure with 24.9% of the portfolio weight, followed by industrials (22.6%), financials (14.9%) and consumer services (10.5%).

Daiwa Asset Management is one of the largest providers of ETFs in Japan and currently has 35 ETFs with around ¥5.4 trillion in assets under management (as of 21 September 2017).

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