ETF TV News #67 Isabelle Bourcier discusses Fixed Income ESG and her 2021 Outlook

Dan Barnes: Welcome to ETF TV News – your update on newly issued exchange traded funds and products. I’m Dan Barnes. Joining me today is Isabelle Bourcier, head of Quantitative and Index Management in the Multi Asset Quantitative and Solutions Division (MAQS) at BNP Paribas Asset Management, and also Debbie Fuhr also of ETFGI. Debbie, can I start with you today? Can you give us a bit of an update on what products we saw listed over the previous week?

Deborah Fuhr: There were 33 new listings last week and 33 cross-listings. So it takes us to 330 year-to-date in terms of new listings and 399 cross-listings. We saw products come to market from 22 issuers, they were listed on 10 exchanges covering products from 11 index providers. Eight of the products were active, 27 were focused on equity benchmarks. There were thematics, buffer, again, China was in focus, including Connect products. There were three products on BIX, three ETNs and one that was ESG and one fixed income.

Dan Barnes: And taking that ESG point, I’d like to turn to Isabelle. Isabelle, welcome to the show.

Isabelle Bourcier: Thank you for having me on the show.

Dan Barnes: BNP Paribas Management listed a high yield SRI, fossil-free ETF last week. Could you tell us a bit about the index?

Isabelle Bourcier: The index is the Bloomberg Barclays MSCI Euro High Yield SRI Sustainable ex Fossil Fuel Bond Index. Quite a long name. It’s a fixed rate, yield, corporate bond benchmark that follows the rules of Bloomberg Barclays Euro-corporate high yield index, and to be eligible for the index bonds must have a minimum amount of outstanding of 250 million euros. It includes issuers with MSCI ESG rating of double B or higher and excludes issuers that are involved in business activities that are restricted, according to predefined business improvement screens and issuers with a red MSCI ESG controversy score. With this we intend to offer investors strong ESG features, strong ESG ratings and excluding any ties to fossil fuel activities.

Deborah Fuhr: We’ve seen a lot of interest in ESG when it comes to equity investing. I’m curious as to where you see demand right now for fixed income in the ESG space?

Isabelle Bourcier: Our client base is mostly European and we see a lot of demand coming from asset managers, but also private banks, managers that need to diversify their portfolios. More and more, they’re building their asset allocation around ESG as a whole. And obviously they were missing a toolbox for them, which was Euro high yield, which is one of the reasons why we came up with a product.

Deborah Fuhr: Has SFDR raised awareness of the various levels of ESG investing?

Isabelle Bourcier: SFDR is certainly a big topic across all the discussions that we have with clients right now. I mean, it started a few months ago, obviously. There was already quite a lot of discussion around ESG labels because people were expecting this to happen. But the focus of the discussion have been around the classification of product under SFDR. And yes, it’s a big theme. And obviously it’s going to push more and more those asset managers and the western manager to invest into it, including in corporate bonds, every type of asset class actually.

Deborah Fuhr: Thinking about your business at BNP, what is your kind of geographic and client segment focus for your ETF business?

We are most strong in our core markets, which are the French market, German speaking countries, Italy, Spain. And this is where we’ve made the most progress in the last few years in terms of raising assets with our clients. We are not intending to be a supermarket of ETF. We are intending to be very focused in ESG specifically not only on the fixed income side, as you saw with the new launches, but also in any type of ESG thematic products. This is what we launched in the last few years around the economy, circular economy. So we intend to be more focused and specialist into an area which is ESG, which is, as you know right now, quite appropriate, knowing that it’s very important for a lot of our clients to build their location.

Deborah Fuhr: What is your outlook for the rest of 202,twenty, twenty one?

Isabelle Bourcier: What we’ve seen in the last two years is a growing appetite for ESG once again and notably for thematic. What we’re seeing is a lot of fund of fund looking to include more thematic into their allocation and they’re trying to include thematic that makes sense for their investors and notably retail investors. So there’s a lot of things happening at a regulatory level in every country. In France, what is called The Loire Pact, the pact has brought a lot if attento and what affect the backflow has brought a lot of attention to ESG as well. You know, it’s impressive the growth that we’ve seen in the last two years and we believe it’s going to continue this way and accelerate actually with SFDR, with the MiFID II coming up and then. Using more and more in terms of ESG disclosure and imposing one mode, the choice for ESG for investors,

Dan Barnes: That’s great, Isabellle. Thank you so much for your insights today.

Isabelle Bourcier: Thank you very much for having me on the show today. Thank you.

Dan Barnes: Debbie, can you give us a bit more color on some of the issuance we saw over the previous week?

Deborah Fuhr: Sure. I think when we look at the issue, I find it interesting when we see something launching in some of the Asian markets, rather than just having one issue or launch something, we have three launching S&P VIX ETNs this week out in Korea, so it tends to be very much kind of a herd mentality if one does. There’s a bunch that follow. And we are seeing active ETFs continuing to grow. The other trend we’re seeing in the industry is, again, a focus on fees. So we’ve seen a number of firms, whether it’s iShares, DWS, State Street announcing fee cuts on their products, on the annual cost that they charge. Unfortunately, that is a feature that many investors look at first, when they look at ETFs, but they really should be looking at other factors and making sure it is the right product they’re selecting. But we are finding that lower cost ETFs are attracting the majority of assets and that definitely is happening in the plain vanilla space. And other than that, we’ve seen more filings for crypto ETFs, so I think at some point this year, we will likely see a product listed in the US.

Dan Barnes: That’s great, Debbie, that’s really interesting. Thank you again so much.

Deborah Fuhr: Thank you.

Published on March 30, 2021