Amid the growth in environmental, social and governance (ESG) investments, more advisors and market participants are clamoring for fixed income ESG solutions. Exchange traded funds are rising to meet that demand.

Fortunately, not all ESG bond ETFs require investors to accept less income. Consider the Nuveen ESG High Yield Corporate Bond ETF (NUHY), an ETF that can increase exposure to securities with higher ESG scores, reduce carbon footprint through distinct low carbon criteria, and provide the risk/return characteristics of traditional non-ESG exposures.

NUHY YTD Performance

Just over a year old, NUHY provides investment results, before fees and expenses, similar to those of its primary benchmark, the Bloomberg Barclays MSCI US High Yield Very Liquid ESG Select Index (the “Index”). It will provide exposure to the below-investment-grade taxable fixed-income market while adhering to ESG-focused criteria.

The Right Place and the Right Time for NUHY

“A recent survey by Tabula Investment Management found that 82% of professional investors want to see more innovation within fixed income ESG ETFs, while the Index Industry Association has revealed that the number of fixed income ESG indices available globally is on the rise, accounting for much of the 40% rise in the overall number of ESG indices over the past year,” reports Anna Fedorova for ETF Stream.

NUHY is the industry’s first high yield corporate bond ESG ETF and complements Nuveen’s existing ETF offering, which is among the most comprehensive suite in ESG ETFs. The fund fills an industry-wide product gap, developed in response to investors’ desire for income in a historically low-yield environment. It will also allow for greater diversification for a portfolio. Data indicate there’s strong demand for ESG bond ETFs around the world.

“When the demand is there, launches tend to follow. In Europe, 27 new fixed income ESG ETFs have been launched this year as of 19 October, according to TrackInsight. This makes up around a third of all fixed income ETF launches in 2020 and nearly half of the total number of fixed income ESG ETFs available in Europe, which stands at 66,” according to ETF Stream.

NUHY’s benchmark utilizes specific ESG criteria to select from the securities included in the Bloomberg Barclays U.S. High Yield Very Liquid Index (the “Base Index”), which is designed to capture the U.S. dollar-denominated, high yield, fixed-rate corporate bond market.

For more on multi-factor strategies, visit our Multi-Factor 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.