Arne Noack steps into top DWS job in US with ESG commitment front and centre
It’s been all change at DWS with the announcement of Manooj Mistry’s recent move from his role as global head of Index Investing at DWS to join European white labeller HANetf.
Meanwhile, early January saw a new role for Arne Noack, who has become the new Head, Systematic Investment Solutions, America for DWS.
The end of February saw the firm launch two new funds in the ESG space: Xtrackers S&P MidCap 400 ESG ETF (MIDE) and Xtrackers S&P SmallCap 600 ESG ETF (SMLE). The additions of MIDE and SMLE, are designed to complement DWS’s S&P 500 ESG Fund, SNPE, which has a current AUM of over USD452 million.
“The one thing that is important for us is how far sustainable and ESG-related investing is front and centre to everything we do,” Noack says.
The launches represent DWS’s observation of growing investor demand for ESG ETFs – underscored by the firm’s record inflows of USD1 billion USD into its ESG ETFs in 2020, giving is USD3.8 billion in ESG ETF assets and raising the overall AUM of the Xtrackers suite to USD21 billion in the US. The launches are also on the heels of the firm’s recent commitment to an ESG default in 2021.
DWS sees its ETF business as a global passive business, with Noack reporting to Fiona Bassett, Global Head Systematic Investment Solutions, who is based in London while Noack will continue to be based in New York.
In Europe, DWS is the second largest ETF provider, with a supermarket style offering, while its US business started a little later, in 2011. The firm has some 37 products across its USD21 billion in assets in the US.
At the time of launching the DWS ETF business in the US, it was heavily focused on international equity investments with embedded currency hedges.
Noack moved to the US from his native Europe in 2015, observing that the rounds of quantitative easing in Japan, the UK and the rest of Europe had had a significant positive effect on equity markets there, but US investors needed a currency hedge proposition in order to enjoy them. “Assets sky rocketed to USD20 billion,” Noack says. “It was a great way for us to become known in the market, especially as a non-US player.”
However, over the long term, Noack notes that such a concentrated platform is not a great busines proposition. “From 2015 onwards, we built out the platform and diversified into multi-factor, equity investing and the high yield fixed income space. This was extremely relevant for us with the markets’ need for a strong offering we were able to diversify the mix away from solely being focused on the currency hedged offering.”
DWS in the US has a significant ESG portion of their offering with USD4 billion in assets, and also has a strong China offering, with the largest China A Shares’ ETF in the US, the MSCI All China ETF.
“It’s a more healthy mix of offerings and specific focusses and specialities in which we can compete,” Noack says.
“I had a preconceived notion of what the audience for ETFs in the US would be and it’s been a great learning experience to discover that the core audience of ETF usage here is the financial adviser community, broker dealers or wire houses or independents with a strong sophisticated RIA community, with ETF strategists who are highly sophisticated in the usage of ETFs.”
He compares that dynamic with his past experience in Europe, where that level of decentralisation hadn’t clicked in. “It was more centralised and diversified across wealth managers, private banks, and family offices but not as broad as in the US, which is great to see and also provides a challenge for the supply side. As ETF providers, we need to be sure that both the product and the messaging appeals to a diverse and broad audience whereas in Europe we could be more targeted because we knew the audience more intimately and closely.”
He finds the US ETF industry interesting and indicates the development of the industry that will be felt over the rest of the world. “For us as a core player in Europe, what we learn here can bring us some insights,” he says.
The rise of ESG has been one of the biggest trends in ETFs over the past year and DWS has launched several products recently, centred on sustainable investment, but he notes that the dynamics differ between the US and Europe.
“Here in the US, we have a groundswell of interest and we may not swim in the same level of regulatory direction where we have to follow a regulatory drive for sustainable investments, but we are attuned to and in touch with demand from adviser,” Noack says. “Certain elements that feature are the shift of wealth towards to the millennial generation for whom there is more relevance of their ESG impact where their dollars are invested.
“Ultimately, portfolio managers across the country see a need to educate themselves as to how to make ESG an integral part of their portfolios and that is our premise, to partner with those firms who seek to educate themselves, as opposed to being a pure product provider. We are on the side of the financial adviser.”
Planned launches on the DWS radar is another product in the China A Shares space. “We have the largest and most liquid China A shares ETF in the US with USD3 billion in assets, and we see increasing interest and want to follow that up with more thematic nuances on that exposure.”