Fixed income exchange traded funds are increasingly tapping into socially responsible investing themes. A good example of that trend is the newly minted iShares Global Green Bond ETF (NasdaqGM: BGRN), which debuted last week.
The iShares Global Green Bond ETF tries to reflect the performance of the Bloomberg Barclays MSCI Global Green Bond Select (USD Hedged) Index, which is comprised of global investment-grade green bonds issued to fund projects with direct environmental benefits, according to the fund’s prospectus.
Green bonds are fixed income debt securities where the proceeds are exclusively applied to projects or activities that promote climate or other environmental sustainability purposes.
“A green bond is a debt instrument in which the issuer commits to using the borrowed money for projects deemed environmentally beneficial,” said Ashley Schulten, BlackRock’s head of responsible investing for global fixed income, in a recent note. “These can include everything from installing solar panels at factories to improving energy efficiency to constructing green buildings.”
Chart Courtesy: BlackRock
More BGRN ETF Details
BGRN holds 176 bonds and has a duration of 6.95 years. Duration measures a bond’s sensitivity to changes in interest rates. The green bond market is over a decade old, but recently has received more attention and is expected to be home to rapid growth in the coming years.
“Today there are almost $475 billion in green bonds outstanding, with over $150 billion issued in 2017 alone,” said Schulten. “That market is global and spread across a range of public and corporate issuers.”
Over 44% of BGRN’s holdings are agency or super-national debt while another 15.65% are issued by financial institutions. About 61% of the new ETF’s holdings have maturities ranging from three to 10 years.
Green bonds “offer investors the ability to pair their financial and environmental objectives,” said Schulten. “Investors can still access the bond market as a way of seeking income and adding diversification in a broad portfolio. At the same time, they can know that their investment will go towards funding projects designed to address climate and other environmental issues.”
BGRN’s portfolio is highly rated as 77% of its holdings have AAA, AA or A credit ratings. The new ETF charges 0.20% per year, or $20 on a $10,000 investment.
For more information on new fund products, visit our new ETFs category.