In brief: BNP Paribas debuts G-focused low vol ESG play

BNP Paribas has issued an index-tracker certificate, which selects companies based on their G-force. The index underlying the structured product is part of the new Solactive index series dedicated to covering the governance topic - the Solactive ISS Governance Indices.

“In Europe, the idea of the incorporation of ESG factors in investors’ portfolios is far more advanced than in North America, which mainly has to do with recent local political initiatives, e.g., of the European Parliament and also through public awareness driven by media-effective movements,” said Timo Pfeiffer (pictured), chief markets officer at Solactive. 'BNP Paribas’ involvement with ESG and their focus on G incentivizes companies’ governance behavior and motivates them to put more emphasis on maintaining a risk-management strategy.’

The small index family houses two indices, the European-stock-centered Solactive ISS Europe Quality Governance Select 50 Index and the US-stocks-based Solactive ISS Quality Governance Index. The first utilizes the Solactive Europe 600 Index as its underlying base universe, while the second selects its constituents from the Solactive GBS United States Large & Mid Cap Index and the Solactive GBS United States Small Cap Index.

In the initial stage, the selection process features a broad controversy screening, excluding companies with significant involvement in areas such as tobacco, military equipment, and gambling. The more sophisticated Governance Score consists of a multi-level process involving a proprietary scoring taking into account internal auditing, a company’s board structure, shareholder rights, and compensation. The remaining stocks with the highest Governance Score will be included in the index composition. All ESG Data for this index family is provided exclusively by ISS ESG.

Additionally, the indices use a low-volatility optimization, giving investors a more conservative risk-profile to protect them from potential market corrections.

FSC decides on penalties for banks involved in DLF fiasco

The Financial Services Commission (FSC) of South Korea has confirmed the penalties to be imposed on Hana Bank and Woori Bank for the mis-selling of derivatives-linked funds (DLFs).

The decision is based on the inspection results previously taken by the regulator during last year. Hana Bank will be suspended from selling private equity funds for six months (from March 5 to September 4, 2020) and faces a fine of KRW16.78 billion (US$14m). Woori Bank will be suspended from selling private equity funds also for six months and will be required to pay a fine of KRW19.71 billion.

The disciplinary measures determined by the FSS for bank officials will be carried out by the FSS. In deciding the fines, the SFC took into account the efforts from the two banks to compensate victims for the losses they suffered after an FSS probe in August 2019 found the mis-selling of the DLS, but also a lack of risk management and internal control capabilities.

Dax goes ESG 

The German benchmark index Dax has launched the Dax 50 ESG Index - a new sustainable family member taking environmental, social and governance (ESG) criteria into account to select the 50 top companies regarding their ESG performance, market capitalisation and stock exchange turnover.

The new index was created by Qontigo, the index and analytics business of Deutsche Börse Group.

The starting point for the DAX 50 ESG Index is the HDAX which includes approximately 100 components (HDax is made up of Dax, MDax and TecDax).

In creating the index, norm-based exclusion criteria are applied in accordance with the UN Global Compact Principles, and also product involvement screening for controversial weapons, tobacco, coal, nuclear power and military contracts. The remaining stocks are ranked according to market capitalisation, stock exchange turnover and ESG scores calculated by Sustainalytics. From this list, the top 50 stocks are selected for the index. The index is reviewed every three months. Dax fast-exit and fast-entry rules apply including any sustainability breaches by the index constituents. 

IHS Markit launches Sukuk indices

IHS Markit has partnered with the Saudi Stock Exchange (Tadawul) to launch the iBoxx Tadawul SAR Government Sukuk Index, a riyal-denominated index aimed at tracking the performance of Saudi government Sukuks.

The index is the first of a series of benchmarks for Saudi government Sukuks to be created using Tadawul’s market data and the bond pricing expertise of IHS Markit. Designed to support the development of local financial products, the index has been selected by Saudi ETF issuer Alinma Investment as the benchmark for a new ETF that will be listed on Tadawul.

The iBoxx Tadawul SAR Government Sukuk Index provides broad coverage of fixed coupon riyal-denominated government Sukuk with a minimum outstanding value of SAR 100 million (US$26m). IHS Markit will calculate the index’s daily value utilizing its independent global bond pricing service. The index history begins on June 30, 2019, with subindices also available across the broad maturity spectrum.

BMO upsizes ‐3x FANG+ Index Inverse Leveraged ETNs

Bank of Montreal (BMO) has increased the aggregate principal amount of MicroSectors FANG+ Index ‐3X Inverse Leveraged Exchange Traded Notes (FNGD) by US$100m to a new total of US$325m.

The ETNs offer investors ‐3X daily resetting inverse leveraged exposure linked to the NYSE FANG+ Index. The ETNs, listed on NYSE Arca, were issued by BMO and launched on 22 January 2, 2018, and have been upsized on five previous occasions.

The NYSE FANG+TM Index includes 10 highly liquid stocks that represent industry leaders across today’s tech and internet/media companies. The index is equally weighted, providing a unique performance benchmark that offers investors a value‐driven approach to technology investing. Unlike market capitalisation weighted indices, which can be dominated by a few large stocks, an equal‐weighted index offers for a more diversified portfolio.

Traditional benchmark indices like the Nasdaq‐100 Index (SQQQ) and Technology Select Sector Index (TECS) provide limited exposure to FAANG stocks. Unlike the traditional benchmark indices, the NYSE FANG+ Index offers an investment solution for direct FAANG exposure. Prior to the launch of FNGD, the opportunity to access inverse daily resetting leverage on FAANG stocks was limited. Now, with FNGD, investors can access inverse daily resetting leverage on some of the most innovative names in technology and tech‐enabled companies.

‘Despite a strong tech‐led rally to start 2020, we’ve seen a considerable pullback in the equity markets. Investors, seeking a hedge against the recent volatility, have turned to the short ‐3X FANG ETN (FNGD),' said Scott Acheychek, president of REX Shares. ‘The increase in demand for FNGD has led to another upsizing event – marking the sixth time our partners at BMO have increased the number of notes outstanding since launch.’