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Ossiam, the investment solutions firm which is an affiliate of international business Natixis Investment Managers, has listed a new environmental, social and governance-themed (ESG) low-carbon multi-factor exchange-traded fund on the London Stock Exchange. It is called the Ossiam US ESG Low Carbon Equity Factors UCITS ETF.

The ETF applies a rule-based quantitative strategy which dynamically selects large, mid- and small-cap equities in US markets based on their ESG characteristics and exposure to equity factors.

The fund’s strategy firstly applies a filter which selects the 80 per cent best ESG-rated stocks from a basket of US equities for each industrial sub-sector. The strategy then applies several filters to exclude securities such as those which are highly controversial; are involved in questionable weapons business; have significant operations in the tobacco industry; are in breach of at least one of the Ten Principles of the UN Global Compact; or have more than 20 per cent of their production in coal-fired plants. 

This pool of stocks is then used to build two distinct portfolios - a stock factor portfolio and a sector factor portfolio - which are equally weighted in the strategy. For the stock factor portfolio, individual stocks are screened for significant exposure to the standard equity factors (value, momentum, size and volatility) and their lower carbon footprint. Those with the highest multiple factor exposures are selected.