Victory Capital Holdings, Inc. announced in a press release three new active ETFs that integrate ESG under the VictoryShares umbrella. The VictoryShares ESG Core Plus Bond ETF (UBND) and the VictoryShares ESG Corporate Bond ETF (UCRD) are both managed by USAA Investments; the VictoryShares THB Mid Cap ESG ETF (MDCP) is managed by the company’s THB asset management franchise.
All of the funds are active and transparent and allow investors to allocate their money through an ESG lens into bonds and mid-cap equities; UBND and UCRD are yield-focused portfolio solutions and MDCP focuses on top mid-cap stocks with growth potential.
“Active ETFs continue to gain traction with investors seeking to access managers who have proven successful in mutual funds and other investment vehicles,” said Mannik Dhillon, CFA, CAIA, and president of VictoryShares and Solutions. “We are thrilled to offer our clients ETF strategies that blend our deep experience in active management with an ESG lens, which today’s investors are increasingly seeking.”
Investing With ESG in Mind
UCRD seeks to provide above-average income in a portfolio that is created bond-to-bond based on a bottom-up approach.
UCRD invests mainly in investment-grade securities that are ranked as such by one of the major rating agencies, and it invests up to 20% in securities guaranteed or issued by the U.S. government or its agencies. The fund can also invest up to 30% of its assets in U.S. dollar-denominated obligations of foreign or emerging market corporations, governments, or banks.
The advisor utilizes a proprietary credit rating methodology as well as a proprietary ESG scoring methodology to select securities to invest in, and it only invests in issuers that rank in the top three categories of the ESG scores.
ESG considerations include greenhouse gas emissions, a company’s safety record, the diversity of its management, corporate behavior and ethics, and others, and the proprietary model used to evaluate ESG is different for different industries. The fund will not invest in companies with the lowest ranking on its proprietary scale unless they have been downgraded while invested in, and it will only invest in level two securities if they are actively improving ESG practices or the advisor plans to engage and work with them on their practices.
UCRD carries an expense ratio of 0.40%.
UBND seeks to provide above-average income in a portfolio that is created bond-by-bond based on a bottom-up approach. UBND invests in securities that are between three and 10 years in maturity and can invest in government obligations, mortgage and asset-backed securities, corporate debt securities, repurchase agreements, and other securities that are debt-like.
Up to 65% of the fund can be invested in corporate bonds at any given time, and it will invest mainly in investment-grade securities. However, it can invest up to 20% in below-investment-grade securities, also known as “junk” bonds, and it can also invest up to 20% in U.S. dollar-denominated obligations of foreign or emerging market corporations, governments, or banks.
The advisor utilizes the same ESG approach that is used in UCRD.
UBND carries an expense ratio of 0.43%.
MDCP contains roughly 30 holdings at any given time and is focused primarily on the healthcare, consumer, industrials, and information technology sectors. MDCP is a fund for investors looking for long-term investment as it has a three to seven year horizon.
The fund defines mid-cap as companies that fall within the market cap range of the Russell Mid Cap Index, which, as of the end of August, had a range between $1.5 billion and $62.9 billion.
THB uses a bottom-up, fundamental research investment process combined with the security’s ESG factors to select the top 30 securities for the fund. Securities are evaluated using a quantitative and qualitative process and analyzed for rising cash flow and increased revenue, as well as management, financial strength, industry position, and ESG rating determined by the advisor’s proprietary method.
When analyzing for ESG qualities, the advisor looks at 16 different categories, including climate change, energy efficiency, labor practices, supply chain management, board diversity and independence, and others. The fund will invest in companies with lower ESG ratings only if they have identified issues and are taking corrective actions to improve their ESG performance.
MDCP does not invest in companies directly involved in the primary manufacture of complete tobacco products, cluster munitions, thermal coal, or fossil fuels. The fund also seeks to maintain the overall carbon risk for the portfolio at or below a third-party’s index level that is made up of large- and mid-cap portions of the U.S. and Canadian markets, excluding the highest carbon-emitting and largest carbon reserve-owning companies.
MDCP carries an expense ratio of 0.55%.
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