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CSOP, CGS-CIMB launch world's first Apac low-carbon ETF

Jovi Ho
Jovi Ho9/29/2022 07:54 PM GMT+08  • 4 min read
CSOP, CGS-CIMB launch world's first Apac low-carbon ETF
With US$150 million ($215.9 million) in assets under management (AUM), the CSOP CGS-CIMB FTSE Asia Pacific Low Carbon Index ETF is Singapore’s largest equity ETF at listing. Photo: SGX
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On Sept 28, CSOP and CGS-CIMB listed the Singapore Exchange’s (SGX) first exchange-traded fund (ETF) to track the FTSE Asia Pacific Low Carbon Select Index — the first such ETF in the world.

Launched in May, the index comprises companies with the lowest carbon intensities relative to peers in their industries.

CSOP Asset Management, a leading ETF issuer based in Hong Kong, is the manager of this ETF while CGS-CIMB is the adviser.

With US$150 million ($215.9 million) in assets under management (AUM), the CSOP CGS-CIMB FTSE Asia Pacific Low Carbon Index ETF is Singapore’s largest equity ETF at listing, according to data from Bloomberg.

Its debut brings the total global AUM of sustainability-linked ETFs listed on SGX past $1 billion.

CGS-CIMB Securities group CEO Carol Fong tells The Edge Singapore that CSOP and China Galaxy Securities (CGS) will launch a secondary listing on the Shenzhen Stock Exchange on Dec 7. This will mark the first cross-border ETF between the two bourses, following a memorandum of understanding signed last December.

See also: With impending shareholding changes, CGS-CIMB eyes stronger China-Asean ties

Bursa Malaysia could also host a secondary listing, says Alan Inn, CGS-CIMB’s deputy CEO and group head of retail financial services.

According to an Aug 31 factsheet by FTSE Russell, the FTSE Asia Pacific Low Carbon Select contains 193 constituents from the 2,432 names in the FTSE Asia Pacific Index. Following an annual review in September, this has increased to 214 constituents from 2,431 names in the FTSE Asia Pacific Index universe.

As of Sept 19, Japanese companies continue to dominate the updated index, with 93 constituents representing 40.64% of the portfolio.

See also: CGS-CIMB CEO wants to revive S-chips, strengthen research amid quiet year for SGX

Chinese constituents weigh second at 15.05% with 33 names, while 24 Australian companies make up 12.78% of the index.

While Chinese names may have suffered this year, Fong makes the case for ETFs over single-stock investing, saying she has personally invested in this ETF too. “Investors should be looking at a diversified portfolio. Within the diversified portfolio, there may be years when some companies do not do well. But if you look at where we are today, how China is performing. They’ve done so badly, how much further can they go down?” she says.

Following the rebalancing, financial companies (23.52%) have overtaken tech names (20.54%) to dominate the index, with consumer discretionary companies making up 20.29% of the index.

Taiwan Semiconductor Manufacturing is the index’s largest constituent, representing 4.23% of the Low Carbon Index. Other names include Korea’s Samsung Electronics (3.78%), Japan’s Toyota Motor (3.17%), China’s Alibaba Group Holding (2.64%) and Hong Kong-listed insurer AIA Group (1.85%).

Rounding out the top 10 constituents are Commonwealth Bank of Australia (1.82%), Australian biotechnology company CSL (1.67%), Chinese shopping platform Meituan Dianping (1.57%), Japan’s Sony Corp (1.53%) and National Australia Bank (1.18%).

Two names fell out of the top 10 after the rebalancing: Indian energy company Reliance Industries (1.07%) and China’s Tencent Holdings.

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In terms of dividend yields, the wider index paid out 2.94%, higher than the Low Carbon Index’s 2.59%. That said, Fong points to the unit price, which has “shown outperformance” compared to the wider index.

As of Aug 31, the Low Carbon Index had a five-year return of 14.7% net tax, compared to the FTSE Asia Pacific’s 14.0%.

According to David Ng, deputy CEO, Singapore, at CSOP Asset Management, the Low Carbon Index excludes companies that produce thermal coal and tobacco, which are regarded as high-dividend companies.

“Although traditional energy companies have a history of high dividend payouts, they are exposed to more stringent carbon regulation in the future, such as carbon taxes, and their profits will be more impacted than that of tech companies,” he says.

A fifth of the index constituents are tech companies, which prioritise development over dividend payouts, says Ng. “In a bullish market cycle, the tech sector has higher growth momentum and is more likely to bring investors good returns in the long run.”

Fong says lower dividends are better than none at all. “A lot of US technology stocks have no dividend to pay. If you actually do good for the planet, my belief is that it will show in the numbers,” she says.

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