Fidelity International made active management changes of $750 million ETF Fidelity Sustainable Global Corporate Bond Multifactor UCITSaligning the fund with the carbon reduction targets of the Paris Agreement.
While many issuers in Europe have launched suites of Paris-aligned ETFs in recent years, the vast majority of these products focus on equity markets.
Investors can gain Paris-aligned exposure to high-quality, high-yield euro-denominated corporate bonds through ETFs offered by black rock, Amundiand MI table; however, these funds are passive and, aside from their climate investment credentials, they are generally ‘ordinary’ in nature.
Fidelity’s decision to update its ETF strategy offers a unique proposition to investors – alignment to Paris combined with additional outperformance potential through the firm’s quantitative and multi-factor approach to investing.
The fund is made up of high quality fixed rate corporate bonds issued worldwide. Its stock selection process remains largely unchanged and is guided by Fidelity’s proprietary multi-factor credit model combined with built-in sustainability criteria. Developed by the firm’s systematic bond team, the model seeks to identify bond issuers with the potential to enhance idiosyncratic returns.
The quantitative process first considers a variety of sentiment, valuation, fundamental and ESG scores to provide an overall multifactor score for each bond issuer. It then aims to generate alpha by selecting the most attractive bonds (based on transaction costs and valuation metrics) among issuers with the highest multifactor scores.
Following the update to the ETF’s investment approach, Fidelity has now incorporated additional selection steps and an optimization weighting approach designed to align the fund with the requirements of the Paris-Aligned Benchmark (PAB ) of the EU.
Specifically, issuers that are involved in serious ESG-related controversies, are known violators of international standards, are known to negatively impact certain United Nations Sustainable Development Goals, or have arms-related business activities, tobacco, thermal coal and oil. & gases are eliminated.
The remaining issuers are then weighted to achieve an immediate reduction of at least 50% in the weighted average carbon intensity compared to the initial universe of broad market corporate bonds, as well as a further annual decarbonization of 7% in the future, aligning with a trajectory aimed at limiting global warming to 1.5°C by 2050.
Due to the ETF’s enhanced sustainability credentials, it has been reclassified from Article 8 to Article 9 under the Union’s Sustainable Financial Disclosure Regulation (SFDR) European.
The fund is listed on London Stock Exchange in US dollars (LN FSMF) and the British pound (FSMG LN), on Xetra in euros (FSCM GY), on SIX Swiss Stock Exchange in US dollars (FSMF software) and Swiss francs (FSMFCHF SW), and is also available on the LSE through a GBP hedged share class (LN FSMP).
It has a spend rate of 0.25%.