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Printing Green With A Green Bond ETF

April 23, 2019 9:26 am
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Environmentally conscious investors have long had plenty of equity-based exchange traded funds to consider. More recently, the number of fixed income ETFs dedicated to environmental investing principles has been increasing.

Green bonds, or debt issued to finance environmentally friendly projects, are a growing corner of the fixed income market and increasingly accessible to investors thanks to ETFs such as the VanEck Vectors Green Bond ETF (NYSE:GRNB).

What Happened

GRNB, which recently celebrated its second birthday, holds 184 green bonds and follows the S&P Green Bond Select Index. That index “is comprised of labeled green bonds that are issued to finance environmentally friendly projects, and includes bonds issued by supranational, government, and corporate issuers globally in multiple currencies,” according to VanEck.

GRNB has an effective duration of 6.48 years, making it an intermediate-term bond fund. Importantly, data suggest the global green bond market is growing.

Why It's Important

“The first quarter of 2019 saw a welcome boost in green bond supply, totaling over $40 billion, which is up approximately 46% versus the same period one year ago,” said VanEck in a recent note. “North American issuance was up approximately 30%, with green bonds from first time corporate issuers including Verizon and Citigroup as well as repeat issuance from companies such as Duke Energy and MidAmerican Energy.”

GRNB reflects the global nature of the green bond market. France, Germany, the Netherlands and the U.S. combine for about 44 percent of the fund's geographic exposure. Global green bond issuance could approach $250 billion this year, up from $167 billion last year, according to VanEck data.

“The green bond market showed resilience through extremely volatile periods last year,” said VanEck. “For example, as stock markets globally were reeling on October 11, more green bonds were being issued in the primary market than traditional bonds.”

What's Next

While green bonds are new to many fixed income investors, that doesn't imply a higher level of risk. In fact, GRNB features little credit risk as about two-thirds of its holdings are rated AAA, AA or A.

“In addition to growing interest in building portfolios aligned with values and causes investors believe in, there is greater recognition that environmental, social and governance factors such as climate risk can impact asset prices significantly,” according to VanEck. “Green bonds provide a way for investors to build environmentally aware portfolios without having to compromise on risk and return objectives, that may fit nicely into a core bond allocation.”

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