For instance, the VanEck Vectors Green Bond ETF (NYSEArca: GRNB), the first green bond-related ETF to come to market, shows a yield to worst of 1.48%, a 6.33 year effective duration and a portfolio of investment-grade debt, including AAA 31.2%, AA 16.7%, A 28.6% and BBB 14.4%.
“This is a theme that resonates with all types of investors,” Sokol told ETF Trends in a call. “The debt securities are like conventional bonds, but with a green kicker.”
Moreover, given GRNB’s international scope, Sokol argued that the ETF may be a suitable core portfolio alternative to the widely observed Bloomberg Barclays Global Aggregate Bond Index.
“Investors can, therefore, allocate a portion of their global bond allocation to green bonds without significantly altering the risk and return profile of their portfolio,” Sokol said. “In other words, bond investors can structure a more environmentally aware portfolio without having to compromise on their investment goals.”
The green bond market represents the investable global green bond market and includes all issuer types, excluding tax-exempt U.S. munis, across countries and currencies, reflecting a portfolio of high quality, core global bond allocations. Moreover, green bonds have shown low historical correlation to broad U.S. fixed income markets, which may provide further diversification benefits to a U.S.-centric bond portfolio.
Nevertheless, green bonds still come with the usual risks, such as interest rate risk and foreign currency risks.