The socially responsible investment theme has grown in popularity as more investors try to align personal beliefs with their own investment outcomes, and within the steadily expanding ETF, fixed-income investors may now have another option to choose from.
“Investors are realizing that ESG strategies do not require a sacrifice in returns. Combining this mindset with the rapidly growing popularity of ETFs makes the timing perfect.” Robert G. Smith, President and CIO at Sage Advisory, said in a note.
On Monday, Sage Advisor launched the Sage ESG Intermediate Credit ETF (CBOE: GUDB), which has a 0.35% expense ratio.
The new Sage ESG Intermediate Credit ETF will try to reflect the performance of the Sage ESG Intermediate Credit Index, which consists of corporate bonds selected from the Barclays Capital U.S. Intermediate Credit Bond Index that meet Environmental, Social and Governance (ESG) criteria, according to a prospectus sheet.
Specifically, the underlying index uses the Sage/Sustainalytics proprietary methodology to assign each debt issuer in the Barclays Capital U.S. Intermediate Credit Bond Index an ESG score from 1 to 100. To be eligible for inclusion in the Index, an issuer must have a minimum overall ESG score of 50 and must rank in the top third of its peer group. Additionally, each issuer must have a Controversy Score of no higher than 3 out of 5 and must meet certain other proprietary conditions specific to each industry group.
The indicators that are analyzed include news regarding a company that may pose ESG risks for the company, incidents of misconduct with ESG implications by a company, events or set of incidents that refers to one ESG issue, and controversies or a set of events under one ESG topic.
“ESG is rapidly gaining traction within both institutional and individual investors, and we’re seeing the positive impact of these conscious investments across a wide range of sectors and causes,” Smith said in a seperate note. “With the Sage ESG Intermediate Credit Index, we’ll achieve our goal of providing an institutional quality index that further accelerates the momentum gained to date.”
The new GUDB is not the only socially responsible bond-related ETF optoin on the market as more money managers are beginning to take notice of a growing opportunity in this space. For instance, the NuShares ESG U.S. Aggregate Bond ETF (NYSEArca: NUBD) screens for certain environmental, social and governance, or ESG, criteria when selecting from securities taken out of the benchmark Bloomberg Barclays US Aggregate Bond Index.
The VanEck Vectors Green Bond ETF (NYSEArca: GRNB) was the first fixed income exchange traded fund offering exposure to green bonds or debt securities issued to finance projects that promote climate change mitigation or adaptation or other environmental sustainability purposes.
Additionally, the Inspire Corporate Bond Impact ETF (NYSEArca: IBD) focuses on a debt issuer’s alignment with biblical values, along with the positive impact the company has on the world through various environmental, social and governance criteria.