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LGIM eyes up ESG-screened stocks with three new quality equity dividend ETFs


Investment strategies focus on ESG screened stocks able to generate sustainable income

Investment strategies focus on ESG screened stocks able to generate sustainable income

Legal & General Investment Management (LGIM) has launched a range of three quality equity dividend ETFs, which will focus on ESG-screened stocks capable of generating sustainable income.

The three ETFs track FTSE Russell indices and follow proactively designed index investment strategies, which have been tailored for investors by LGIM and FTSE Russell.

These indices rely on the quality of the underlying companies, looking for those with strong dividend characteristics while excluding those facing significant ESG risks.

The funds have been listed on the London Stock Exchange and are available to UK intermediary and retail investors.

These new ETFs are the L&G Quality Equity Dividends ESG Exclusions UK UCITS ETF, the L&G Quality Equity Dividends ESG Exclusions Europe ex-UK UCITS ETF and the L&G Quality Equity Dividends ESG Exclusions Asia Pacific ex-Japan UCITS ETF.

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Howie Li, head of ETFs at LGIM, said: “We apply a rigorous series of quantitative screens to select stocks based on their quality metrics, dividend characteristics, and ESG profile.

“We look to identify those quality companies that can sustain a consistent dividend and thus believe that this fund range is a powerful proposition for investors seeking to address their search for income, desire for growth potential, and an increasing awareness of ESG risks.”

The ETFs’ methodology applies a set of three systematic screens for dividends, quality and ESG exclusions. The purpose of the quality screen is to help identify and remove stocks with a fundamentally poor balance sheet and/or income statement characteristics.

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A quality score is calculated by FTSE as a geometric average of three underlying metrics: company earnings, assessing profitability and cash components; asset growth; and leverage metrics.

Their dividend screen aims to maximise exposure to a basket of stocks which have a track record of consistent and rising shareholder distributions, and the potential to sustain them into the future.

This means identifying companies paying consistent and resilient dividends based on their positive return on equity, a demonstrably positive trend in the dividends distributed per share and a higher consensus forecast on dividend yields.

James Crossley, head of UK retail sales at LGIM, added: “Dependable income is something investors are crying out for in the current environment, but some stocks with high dividend yields may be value traps with poor fundamentals and weak growth prospects.

“We believe that in giving investors exposure to a range of quality companies, with strong dividend characteristics and avoiding material ESG risks, we are well positioned to help them generate consistent income in their portfolios. These new funds add to what is already an impressive suite of ETFs, increasing the depth and breadth of LGIM’s offering to investors.” 

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LGIM sought to work with an index partner in FTSE Russell that covers 98% of the investable market, offering a true picture of global markets and specialist knowledge in developing local benchmarks around the world. Its index design and management are backed up by a transparent rules-based methodology and informed by independent committees of leading market participants.

These three new funds will build on and complement LGIM’s existing suite of core and thematic ETFs across different asset classes, bringing the total range to 41 funds, 33 of which are available on the Italian, German and Swiss stock exchanges.

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