As more equity-based environmental, social and governance ETFs have come to market, advisors, and investors have long pondered how they can apply similar virtues to the fixed income sleeves of their portfolios.
ETF issuers have responded by increasing the number of available ESG bond funds, a group including the iShares ESG U.S. Aggregate Bond ETF (NYSEARCA: EAGG). EAGG, which recently turned a year old, “eeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade bonds from issuers generally evaluated for favorable environmental, social and governance practices while exhibiting risk and return characteristics similar to those of the broad U.S. dollar-denominated investment-grade bond market,” according to iShares.
The $118.5 million EAGG tracks the Bloomberg Barclays MSCI US Aggregate ESG Focus Index and holds nearly 900 bonds.
“The need for sustainable fixed income solutions is growing: Bonds are in high demand – against a backdrop of aging populations in search of income and geopolitical volatility that has sparked greater demand for ‘safe’ assets,” said BlackRock in a recent note. “We believe fixed income investors can draw on many of the insights that equity-focused research has produced on ESG.”
A Corporate Idea
For investors looking for the combination of corporate bonds and ESG principles under the umbrella of one ETF, there is the iShares ESG USD Corporate Bond ETF (NasdaqGM: SUSC).
SUSC, which is more than two years old, “seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade corporate bonds issued by companies that have positive environmental, social and governance characteristics while exhibiting risk and return characteristics similar to those of the parent index of such index,” according to iShares.
“The ‘why not?’ moment in sustainable investing has arrived in fixed income as well,” said BlackRock. “Investors can now use sustainable building blocks to integrate sustainability across equities and fixed income allocations. Our analysis suggests that ESG indexes offer similar risk/return properties to traditional benchmarks while adding a dose of portfolio resilience.”
For more on bond strategies, please visit our Fixed Income Channel.
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.