iShares launches Japan ESG ETF on LSE and Xetra

May 24th, 2016 | By | Category: Equities

The world’s largest exchange-traded fund provider iShares has launched an ETF offering currency hedged exposure to Japanese equities that have been screened for positive environmental, social and governance (ESG) characteristics. The iShares Sustainable MSCI Japan SRI EUR Hedged UCITS ETF (SUSJ) is trading on the London Stock Exchange in euros and sterling, and on Xetra in euros.

The fund attempts to completely hedge the risk of adverse movements of the Japanese yen against the euro by entering into one month futures contracts to sell an amount of yen equal to the fund’s principal at the time the contract was initiated.

iShares launch Japan ESG ETF on LSE and Xetra

By favouring firms with strong ESG characteristics, research suggests investors are able to better capture long term sustainable returns through avoiding companies exposed to significant reputation and litigation risk.

The fund’s underlying index, the MSCI Japan SRI 100% Hedged to EUR Index, targets companies with outstanding ESG ratings and excludes companies whose products have negative social or environmental impacts. The index is designed for investors seeking a diversified socially responsible investment benchmark comprised of companies with strong sustainability profiles.

For the initial construction of all MSCI SRI Indices, a combination of values based exclusions and a best-in-class selection process is applied to companies in the regional indices that make up the MSCI ACWI Index, a global equity index consisting of developed and emerging market countries. After securities of companies involved in nuclear power, tobacco, alcohol, gambling, military weapons, civilian firearms, GMOs and adult entertainment are excluded, MSCI’s best‐in‐class selection process is applied to the remaining eligible securities in the selection universe. The index is float-adjusted market capitalisation weighted.

An increasing body of research is emerging that shows that by tilting towards companies exhibiting ESG strength, indices are better able to capture long-term sustainable returns by avoiding companies subject to social and environmental risks and favouring those which follow good management techniques. During 2015 the MSCI Japan SRI 100% Hedged to EUR Index gained 12.34% compared to 9.90% for the MSCI Japan Index.

As of 23 May 2016 the fund has 70 holdings with significant exposure to the consumer discretionary (23.1%), industrials (15.9%), materials (11.9%), telecommunications (11.3%) and financials (11.0%) sectors. The largest holdings in the fund are KDDI (6.7%), Honda (5.8%), NTT Docomo (4.7%), Sony (4.4%) and East Japan Railway (3.9%).

The total expense ratio of the fund is 0.35%.

The MSCI Japan Socially Responsible Index also underpins the UBS ETF – MSCI Japan Socially Responsible UCITS ETF (JPY) which was launched in August 2015. The fund, which trades in euros and does not apply currency hedging, is down 1.8% since inception to 24 May 2016.

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