Fidelity International expands sustainable active ETF range

In response to rising demand, Fidelity International (“Fidelity”) is pleased to announce it is expanding its sustainable active ETF range with the launch of two fixed income ETFs.

The Fidelity UCITS II ICAV – Fidelity Sustainable EUR High Yield Bond Paris-Aligned Multifactor UCITS ETF and Fidelity UCITS II ICAV – Fidelity Sustainable USD High Yield Paris-Aligned Multifactor UCITS ETF list on Xetra today, with listings on the London Stock Exchange, SIX and Borsa Italiana to follow.

The Funds complement the successful $800m** Fidelity UCITS II ICAV – Fidelity Sustainable Global High Yield Bond Paris-Aligned Multifactor UCITS ETF launched in November 2022.

Benefiting from Fidelity’s quantitative, fundamental and sustainability research, the Funds invest in a portfolio primarily made up of high-yielding, sub-investment grade corporate debt securities of issuers globally, seeking income and capital growth while aiming to align with the Paris Agreement long-term global warming objectives by restricting carbon emission exposure in their respective portfolios.

The Funds are built and rebalanced using Fidelity’s proprietary multifactor model, based on the firm’s heritage of fixed income quantitative research and datasets. The model seeks to systematically generate alpha throughout the market cycle, while preserving the core characteristics of the asset class. It is designed to deliver excess returns by investing based on quantitative signals (factors) that aim to identify issuers that outperform under strict considerations of transaction costs.

Alastair Baillie Strong, Head of ETFs at Fidelity International, comments: “By leveraging Fidelity’s extensive research capabilities and proprietary investment insights, we can offer our clients access to a range of uniquely positioned active ETFs that deliver enhanced exposures versus pure index trackers, at an attractive price point.

“Since launch in 2021, our Sustainable ETFs have proved popular with clients, growing to over $5.7bn assets under management across 13 different active strategies today***.”

Both Funds are classified as Article 9 under the Sustainable Finance Disclosure Regulation (“SFDR”).

 Further details on the index

Founded in 2007, Solactive have built a solid reputation as an index and ESG research provider, recognised for the speed, flexibility, quality and proactivity of their index development and administration. Importantly, they are a leading provider of fixed income ESG indices, launching the world’s first Paris Aligned Benchmarks (PABs) in 2020 when the European Commission’s PAB requirements were still provisional. Today, their PABs are used by several preeminent asset managers, including Fidelity.

The aims of the Solactive Paris-Aligned indices are the same. Their differences are that the USD iteration is focused on USD denominated securities and the EUR version is focused on EUR denominated securities.

The aim of the indices is to track the performance of corporate bonds denominated in EUR and USD respectively, and align with a self-decarbonization trajectory. They include a minimum reduction in weighted average carbon intensity* versus the index provider’s market cap weighted index.

At the launch, gross greenhouse gas emissions as well as greenhouse gas intensity of the index are reduced by a minimum of 50% compared to the market cap weighted index. Throughout the life of the index the carbon emissions as well as the carbon intensity of the Index must always fulfil the self-decarbonization trajectory against the market cap weighted index.

The self-decarbonization trajectory is at least 7% annually. This is consistent with the decarbonization trajectory from the Intergovernmental Panel on Climate Change (IPCC) 1.5 °C scenario and is defined by an annual minimum carbon intensity reduction of 7% compared to the carbon intensity of the Index on its base date (31 January 2022) in a geometric progression. The 7% annual reduction is split into two 3.5% semi-annual reductions which become effective at the end of January and end of July.

The indices also apply the following exclusions:

• Coal mining and coal power generation; >10% revenues from fossil fuel production, exploration, distribution and services
• >50% revenues from electric power generation from fossil fuel sources
• Companies with significant negative impact on one of SDGs 12-15
• Tobacco cultivation and production
• Controversial weapons
• UNGC violators