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Go Green With This Bond ETF

December 27, 2017 10:43 am
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Go Green With This Bond ETF

If past is precedent, it is reasonable to expect more issuers of exchange traded funds to launch funds aimed at environmental, social and governance principles. It is also reasonable to expect that some of those new ESG funds will be aimed at the fixed income space.

There are some existing ESG bond ETFs, including the VanEck Vectors Green Bond ETF (NYSE:GRNB). The VanEck Vectors Green Bond ETF debuted in March and has $13.3 million in assets under management. GRNB is a first-of-its-kind ETF, delivering exposure to green bonds. Green bonds are issued by companies and governments for environmentally beneficial projects.

GRNB tracks the S&P Green Bond Select Index and holds 98 green bonds.

Bringing Diversity To Bond Investing

While GRNB is not necessarily a yield play — the ETF has a 30-day SEC yield of 1.14 percent — the fund can add diversity to traditional fixed income portfolios along with upside potential. Additionally, GRNB is lightly allocated to sovereign debt.

“As of Dec. 15, 2017, there were just two central government bonds issued in the green market, and they both qualified for the S&P Green Bond Select Index—a local government bond (treasury) issued by France, which accounted for about 6.2 percent of the investable index, and a sovereign bond issued by Poland in Euros. In contrast, the treasury and sovereign components of the Bloomberg Barclays Global Aggregate Bond Index totaled 55 percent,” according to S&P Dow Jones Indices

Over 90 percent of GRNB's holdings are denominated in euros or U.S. dollars. Five of the ETF's 17 geographic weights are emerging markets.

An Infrastructure Idea

GRNB can also be a play on the expected boom in environmentally friendly infrastructure spending around the world, a theme that could prove durable in the coming years.

“By nature, green bonds are issued to provide financing to help with the transition to a low-carbon economy,” said S&P Dow Jones Indices. “The use of proceeds can range from financing consumer auto loans and leases for electric cars to large national infrastructure projects. One recent example of a large-scale infrastructure investment opportunity is the bonds issued by the Mexico City Airport. The new international airport is one of the largest public infrastructure works in a century.”

GRNB features exposure to Mexican green bonds. The ETF is up more than 11 percent this year.

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