Fidelity International has launched a new actively managed fixed income ETF in Europe providing climate-conscious exposure to high yield corporate bonds that have been selected using a multi-factor investment approach.
Nick King, Head of ETFs at Fidelity International.
The Fidelity Sustainable Global High Yield Bond Paris-Aligned Multifactor UCITS ETF has been listed on London Stock Exchange in US dollars (FHYP LN) and pound sterling (FHYG LN).
Further listings across Europe are expected in the near future.
Benchmarked against the Solactive Paris Aligned Global Corporate High Yield USD Index, the fund comprises fixed-rate, non-investment-grade-rated corporate bonds issued globally.
The ETF’s security selection process is driven by Fidelity’s proprietary multi-factor credit model combined with integrated sustainability criteria. Developed by the firm’s systematic fixed income team, the model seeks to identify bond issuers with the potential for enhanced idiosyncratic returns.
The quantitative process first considers a variety of sentiment, valuation, fundamental, and ESG scores to deliver an overall multi-factor score for each bond issuer. It then aims to generate alpha by selecting the most attractive bonds (based on transaction costs and valuation metrics) from those issuers with the highest multifactor scores.
Additionally, the ETF includes further ESG screening steps as well as an optimization weighting approach that, collectively, are designed to satisfy the EU’s Paris-Aligned Benchmark (PAB) requirements.
Specifically, issuers that are embroiled in severe ESG-related controversies, are known violators of international norms, are deemed to be having a negative impact on certain UN Sustainable Development Goals, or have business operations linked to weapons, tobacco, thermal coal, and oil & gas are removed.
The remaining issuers are then weighted so as to achieve at least an immediate 50% reduction in weighted average carbon intensity versus the broad high yield corporate bond universe as well as a further 7% annual decarbonization going forward, aligning with a trajectory to limit global warming to 1.5°C by 2050.
The fund comes with an expense ratio of 0.35% and is classified as an Article 9 product under the EU’s Sustainable Finance Disclosure Regulation (SFDR).
Nick King, Head of ETFs at Fidelity International, commented: “Reducing climate impact and supporting the Paris Agreement set out in 2015 are of the utmost importance for building a sustainable future, and the launch of this new ETF reaffirms Fidelity’s ambition in sustainable investing. We are convinced this new sustainable ETF will provide clients the opportunity to meet their financial goals and their climate objectives.”
Fidelity offers a similar multi-factor, Paris-aligned ETF targeting investment-grade corporate bonds from issuers worldwide – the Fidelity Sustainable Global Corporate Bond Paris Aligned Multifactor UCITS ETF (FSMF LN) houses $800 million in assets and has an expense ratio of 0.25%.