OppenheimerFunds expanded its line of revenue-backed exchange traded fund suite to include two new strategies based on sound environmental, social and governance, or ESG, principles.
On Monday, Oppenheimer launched the Oppenheimer ESG Revenue ETF (NYSEArca: ESGL) and Oppenheimer Global ESG Revenue ETF (NYSEArca: ESGF). ESGL has a 0.40% expense ratio and ESGF has a 0.45% expense ratio.
ESGL will try to reflect the performance of the OFI Revenue Weighted ESG Index, which tries to outperform the S&P 500 by focusing on companies with strong ESG practices and re-weights those based on revenue earned. Sustainalytics utilizes a proprietary scoring system and assigns an overall composite ESG score to each company.
ESGF will try to reflect the performance of the OFI Revenue Weighted Global ESG Index, which tries to outperform the MSCI All Country World Index with strong ESG practices and re-weights companies based on revenue earned. MSCI ESG Research utilizes a proprietary ESG scoring system and screens companies based on Sharpe Ratio, a measure of risk-adjusted performance.
Both ESG-related ETFs will also be re-weighted based on revenue. Specifically, the rules-based indexing methodology tries to improve their performance return through weighting each security in the index by top line revenue. Components are then rebalanced every quarter to keep the Revenue Weighted Indices in line with the companies’ most recently reported revenue levels.
[related_stories]Academic research has revealed that strong governance mechanisms have helped diminish default risk and lower bond yields. The ESG principle are more of a way of living or conducting business that correspond with a firm’s core values. Many companies have defined their corporate social responsibility to account for their impact on the environment and social welfare even if there is no legal requirement.
With these socially responsible parameters, companies may be taking on a long-term business model. In an attempt to head off any environmental and social problems that their operations may create, companies are able to obviate potential regulations and diminish political risks ahead. Moreover, this proactive approach may diminish the risk of conflict with nongovernment organizations and other advocacy groups that can affect sales and brand recognition.
For more information on new fund products, visit our new ETFs category.