In Focus: Passive Investing  

New ESG exchange-traded fund to track Nasdaq

New ESG exchange-traded fund to track Nasdaq
Photo: Porapak Apichodilok via Pexels

Invesco has launched a fund for investors wanting a European-based exchange-traded fund that offers an environmental, social and governance-enhanced version of the Nasdaq.

Called the Invesco Nasdaq-100 ESG ETF, the new Ucits fund will evaluate Nasdaq companies and weight them on the basis of their business activities, controversies and ESG Risk Ratings from Sustainalytics, a Morningstar company.

According to Invesco, NESG will give investors access to the largest non-financial companies on the Nasdaq exchange with investment exposure tilted to fundamental values.

This is the third ETF launched by Invesco this year offering investors access to the 35-year-old Nasdaq’s technology and innovation-led indices.

As reported by FTAdviser at the time, in March Invesco launched its Nasdaq Next Generation 100 Ucits ETF and a swaps-based version of the flagship EQQQ Nasdaq-100 Ucits ETF, which was launched in 2002 and now has $6.3bn (£4.6bn) of assets under management.

Anna Paglia, global head of ETFs and indexed strategies at Invesco, said: “Invesco has been fortunate to work in lockstep with Nasdaq for over two decades, finding beneficial ways to bring investors all over the globe access to Nasdaq-listed companies.

"Today’s launch celebrates 15 years since we began working with Nasdaq on ESG products. We are confident that the new Invesco NESG will bridge innovation and ESG to help investors meet their investment outcomes.”

Constituents are filtered through an integrated Sustainalytics ESG model that weights companies based on how effectively they are managing ESG risk, rewarding those with a lower risk.

Only six stocks were removed from the parent index in the latest reconstruction, but the weighting methodology improved the already low ESG Risk Rating by 10 per cent, according to Invesco.

The index is constructed by first excluding securities that:

  1. Are involved in adult entertainment, alcohol, arctic oil and gas exploration, recreational cannabis, controversial weapons, gambling, military weapons, nuclear power, oil and gas, oil sands, riot control, shale energy, small arms, thermal coal or tobacco.
  2. Do not comply with the principles of the UN Global Compact or have a high controversy score.
  3. Have a high ESG Risk Rating. Each eligible security is then reweighted by a factor of its market capitalisation and Sustainalytics ESG Risk Rating Score. The index is reconstructed and rebalanced quarterly.

Gary Buxton, head of EMEA ETFs and indexed strategies at Invesco, said: “As investors continue searching for ways to align their portfolios more closely with their personal values, we believe they should also consider the financial impacts of ESG, in terms of managing risks and uncovering opportunities.

"Sustainalytics provides that ESG-focused research at the company level, which Nasdaq applies to its index."

Lauren Dillard, executive vice-president and head of investment intelligence at Nasdaq, said: “The interest in integrating ESG considerations into investment portfolios is on the rise globally.

"We are pleased to work with Invesco to introduce a refined and ESG-friendly version of one of the world's most preeminent benchmarks."

Since its inception over 35 years ago, the Nasdaq-100 has become one of the world’s preeminent large-cap growth indices.

The Nasdaq-100 ESG index aims to offer a similar performance profile to the parent index, but with significant improvements in ESG characteristics.

Due to the exclusion of utility stocks and reduction of companies exposed to climate-related risks, the Nasdaq-100 ESG index also has a lower carbon intensity score compared to the parent index.