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Blog Posts — June 10, 2020

Pulse Online Q&A: Lyxor’s Arne Scheehl on New DAX 50 ESG ETF

The DAX® 50 ESG Index was introduced in March as a new standard for the growing pool of investors integrating environmental, social and governance (ESG) principles into their investment approach and looking for a pertinent liquid German equity benchmark. The index excludes companies in breach of global norms or engaged in controversial activities, and additionally integrates ESG scoring into stock selection.

For a look into the methodology of the new index, visit a recent article here.

Lyxor Asset Management has become the first issuer to introduce a fund tracking the new index. Pulse Online caught up with Arne Scheehl, Head of Product Development & Engineering at Lyxor ETF Germany and Austria, to hear more about the drivers and objectives behind the launch.

Lyxor has introduced the first ETF tracking the DAX 50 ESG Index, a benchmark for German equities with a sustainability approach. What were the drivers behind this launch?

“We see a clear and continuous trend towards sustainable investing. At the same time, we noticed that no investable index with a sustainable approach on German equities existed before the launch of the DAX 50 ESG. With the launch of the ETF, we extend our ESG product universe to cover a key market.”

What type of investor did you have in mind when devising the Lyxor DAX 50 ESG UCITS ETF?

“Pretty much every investor who is looking for an ESG investment into the German equity market. This ranges from retail clients via private banks, to large institutional investors.”

The DAX 50 ESG implements specific activity exclusions and also incorporates ESG scoring to select stocks. How does these criteria reflect current investor thinking in Germany in terms of sustainability?

“The specific implementation of ESG criteria in the investment process is, of course, very individual for each and every investor. But now with the DAX 50 ESG Index, you have a standard that can be applied, and which includes widely accepted exclusionary screens. Specifically for the German investor, the exclusion of military suppliers and atomic-energy-related companies is very important.”

The index’s stock selection methodology is completed with a preference for stocks with larger market capitalizations and higher trading volume. What are the benefits of implementing these rules?

“These two criteria are very important when it comes to tradability of the index and therefore of the ETF. In theory, you could create any index you like, but in practice it is very important that the index – i.e., the ETF – is investable. This can only be assured if market capitalization and trading volume are included.”

Why did you choose an index with the DAX brand and managed by STOXX?

“DAX is probably the best-known index brand in Germany. It reaches all investor types – from retail to professional. Therefore, the DAX index family is a natural choice for German equity exposure.”

2020 has proved to be a very volatile year. Does this market background affect sustainable investments in any different way it affects the broader market?

“That is very true! Fortunately, we have seen that the demand for sustainable investments continues to be strong. I believe that the current COVID-19 pandemic will accelerate this trend.”

Indeed, how do you see sustainable investments growing in the next few years?

“The trend will continue. Support is coming from multiple sides. First of all, many investors realize the need for a more sustainable investment approach. But also, regulatory aspects are contributing to the trend — not only for professional investors with strict investment guidelines, but also for retail investors who receive advise from their banks and who will be enquired with regards to their sustainable investment approach.”

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