The Calvert Ultra-Short Investment Grade ETF (NYSE Arca: CVSB) debuted in late January, making it one of the newest additions to the landscape of environmental, social, and governance (ESG) fixed income exchange traded funds.
Rookie status aside, CVSB could be at the right place at the right for multiple reasons. First, more retail investors are demanding fixed income strategies with the ESG overlay. Second, more institutional investors are showing a willingness to make ESG a cornerstone of their fixed income evaluation processes.
Further cementing the notion that CVSB could be a well-timed addition to the bond ETF universe, a recent study by Coalition Greenwich indicated that 94% of bond investors plan to boost ESG allocations over the next two years.
“For example, certain fixed-income investors want to more effectively incorporate ESG criteria into their investment decision-making but, in order to do so, obstacles in areas such as data acquisition need to be removed to enable such decisions,” wrote Stephen Bruel of Coalition Greenwich. “While the ESG investing industry is not perfect, it is maturing. End investors are demanding ESG products, though of course, with different goals and desired styles.”
Specific to CVSB, the new ETF attempts to beat the Bloomberg 9-12 Month Short Treasurys Index. The fund is actively managed, which could be advantageous to investors on multiple fronts, not the least of which is liquidity.
Liquidity is among the primary concerns of institutional investors considering upping their allocations to ESG bonds. As an actively managed fund, CVSB can emphasize liquidity while not being beholden to the mandates of an index. Fortunately, there are other potential tailwinds that could drive adoption of ESG bonds and funds such as CVSB.
Those include “the entrance of new investors and the maturation of the market structure should alleviate these worries over time,” added Bruel.
CVSB offers other perks, particularly against the backdrop of a lull in both investment-grade and high yield ESG bond issuance. Speaking of credit quality, owing to its mix of investment-grade corporates and U.S. agency debt, default risk is low in the Calvert ETF, as roughly 62% of the ETF’s holdings sport credit grades of AAA, AA, or A.
That conservative credit posture does not imply significant interest rate risk, nor does it cheat investors out of robust income. That much is affirmed by CVSB’s average duration of 0.66 years and a 30-day SEC yield of 5.55%, according to issuer data.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.