Franklin Templeton unveils EM sovereign debt ‘Catholic Principles’ ETF

Franklin Templeton has launched a new fixed income ETF in Europe providing exposure to emerging market government bonds while considering climate criteria and aligning with Roman Catholic principles.

The fund is the only emerging markets sovereign debt ETF in Europe to incorporate screening by Catholic principles.

The Franklin Catholic Principles Emerging Markets Sovereign Debt UCITS ETF has been listed on London Stock Exchange in US dollars (EMCV LN) and pound sterling (CPRI LN) as well as on Deutsche Börse Xetra (FLCV GY) and Borsa Italiana (CATHEM IM) in euros.

The fund is linked to the ICE Catholic Principles ESG Emerging Markets External Sovereign Index which begins its construction process from an initial universe of euro- and US dollar-denominated sovereign debt issued by emerging market countries.

Eligible bonds must have at least $10bn equivalent face value outstanding and a time to maturity greater than one year.

The methodology harnesses the capabilities of Sustainalytics to exclude bonds issued by countries that score poorly on the following Roman Catholic principles: government effectiveness, civil liberty, political freedom, social justice, and the abolition of the death penalty.

The remaining constituents are then weighted so as to reduce the carbon intensity of the index by at least 30% compared to its initial universe.

The ETF comes with an expense ratio of 0.35% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).

Caroline Baron, Head of ETF Business Development, EMEA, Franklin Templeton, commented: “We are delighted to introduce this new sustainable sovereign debt ETF at the lowest fee to European investors. With this offering, we have created a custom-made index and partnered with an ethical advisor to ensure clients have access to a distinct ETF backed by the scale and resources of Franklin Templeton. The combination of Catholic values-based exclusions and a screening process for decarbonization opportunities from the ETF’s investable universe should subsequently appeal to a broad range of investors seeking to widen their portfolio of sustainable investments.”

Rafaelle Lennox, Vice President, Senior ETF Product Specialist, Franklin Templeton, added: “This new ETF offers investors a broader opportunity set within emerging market debt. Despite lower yields among developed market bonds, many emerging market countries have low debt-to-GDP ratios whilst still providing higher yields than their developed market counterparts. Additionally, emerging market bonds have had relatively low correlations to equities when compared to traditional asset classes so allocating to this ETF may help enhance overall portfolio diversification.”

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