X trackers ESG

Korea

ETN offers short strangles on the KOSPI

Korea Investment and Securities, a Seoul-based investment bank and brokerage house, is listing a first of a kind ETN that offers a short strangle strategy on the KOSPI 200. The Korea Investment & Securities TRUE KOSPI Short Strangle 3% OTM ETN 29 (570029, 570030) will use a short strangle strategy that involves a simultaneous selling of KOSPI200 call and put options.

 

The idea behind a short strangle is that if the price of the security or index that the options are written against doesn’t move, both put and call options expire worthless. This way the trader bags the initial credit as profit.

We are unsure who the target market for this type of product might be. Presumably sophisticated Korean institutional investors could do this themselves. Presumably, too, an alternative highly specialised ETN like this might be a bit beyond the pale for retail investors.

 

We are also unsure what type of gains and performance might be expected from this type ETN. If anyone can fill in the blanks for us, please reach out…

 

USA

Xtrackers lists ultra-low cost ESG EAFE fund

In keeping with the times, Xtrackers is listing a new ESG ETF that guns after better behaved companies in Europe, Australia and the Far East. The Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG) will track the MSCI EAFE ESG Leaders Index, and cash in on MSCI’s reputation for providing the best ESG indexes.

 

EASG will sift through companies in EAFE and exclude those in “controversial” sectors like tobacco, nuclear power, alcohol and civilian firearms. And exclude those with damaged reputations due to scandals – be they environmental, labour related or whatever else. The ESG screening also includes a scoring system for companies based on a lengthy list of ESG related criteria. (MSCI’s document explaining the screening is available here).

 

Unusually for an ESG ETF, EASG will be very low cost and charge a mere 14 basis points.

 

Analysis – margin compression comes to ESG

The ESG niche has proved something of a safe haven from the fee war, that is doing so much to ravage ETF issuers profit margins. Whereas the average asset-weighted ETF fee in the US is 21bps, the average fee on ESG products is close to 45bps. While there have been some lower cost ESG ETFs in the US – such as BlackRock’s SUSA, which charges 25bps – none have really put serious pressure on ESG fees. The lack of fee pressures may have something to do with Vanguard sitting this niche out (although that is set to change in the near term, with Vanguard filing for two ESG funds in June).  But it’s also because the niche hasn’t really hit scale just yet.

With today’s listing of EASG, however, we can safely say that fee pressures have arrived.

 

Canada

Vanguard lists high yield ex-North America ETF

Vanguard is listing a new high dividend yield ETF that targets companies in developed economies outside North America. The Vanguard FTSE Developed Ex-North America High Dividend Yield Index ETF (VIDY) begins with the FTSE Developed ex-North America Index, and then exclude REITs and companies that are expected to pay zero dividends for the next 12 months. The remaining stocks are ranked by annual dividend yield and included in the target index.