The VanEck Vectors Green Bond ETF (NYSEArca: GRNB), the first fixed income exchange traded fund offering exposure to green bonds, is trading modestly higher this year and some fundamental factors bode well for the green bond market.
Green bonds are debt securities issued to finance projects that promote climate change mitigation or adaptation or other environmental sustainability purposes. The new breed of green bonds gained momentum in global market ever since the European Investment Bank issued the first green bond in 2007.
GRNB tracks the S&P Green Bond Select Index, which 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.
“S&P Global Ratings says strong market fundamentals and a continuous stream of new issuers and financing instruments may push ‘green’ financial issuance to around $180 billion in 2019 from a record-high $167 billion in 2018,” reports Forbes. “Despite overall slowing in GDP growth and the potential for a likely shift in the credit cycle, S&P expects the labelled green bond market may grow by a healthy 8% in 2019.”
GRNB ETF Details
Most green bonds carry investment-grade credit rates and as such, GRNB’s 30-day SEC yield is just 1.53%. Nearly 83% of the fund’s 178 holdings sport high-quality ratings and over those, nearly two-thirds are rated AAA, AA or A, indicating credit risk is low with this fund.
GRNB is a global bond ETF with exposure to more than 20 countries.
“The expectation is that Europe will remain the primary region for green bond issuance; with the majority of green bond proceeds to continue to be allocated to the energy, transport, and buildings sectors; and the market may diversify further by country and financing instrument,” according to Forbes.
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About 10 European countries are represented in GRNB, including a 20.14% weight to French green bonds. An array of factors are supportive of the long-term thesis for green bonds.
“The incredible transformation of the economics of clean energy, combined with increasingly commercial energy storage and efficiency approaches, are fundamentally changing the expectations for what energy and other infrastructure development will look like,” notes Forbes.
For more information on the fixed-income markets, visit our bond ETFs category.