Investors looking for high yield in the convenience of an ESG ETF wrapper can consider a fund that combines the best of both worlds. Enter the Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF (ESHY).
In this low yield environment, finding income isn’t getting any easier. On the flip side, ESG exposure is more prevalent as the space has grown exponentially over the last few years.
ESHY gives ETF investors yield and ESG with an inexpensive 0.20% expense ratio. That’s 27 basis points less than its category average per the fund’s profile on Yahoo Finance.
ESHY seeks investment results that correspond generally to the performance, before fees and expenses, of the J.P. Morgan ESG DM Corporate High Yield USD Index. The fund will invest at least 80% of its total assets, but typically far more, in instruments that comprise the underlying index.
The index generally aims to keep the broad characteristics of its parent index, the J.P. Morgan DM High Yield USD Index (a USD denominated high yield corporate bond index of developed market issuers), resulting in a broad high yield fixed income market exposure with ESG aspects.
ESG’s Resilience Despite a Global Pandemic
While ESG bonds might still be in their nascent stage when compared to equities, they’ve already proven their resilience amid the market downturn caused by COVID-19.
“Much like their equity counterparts, passive bond funds with an ESG tilt have experienced significant growth in recent years,” a Financial Times Adviser article said. “ESG bond ETFs commanded some $7.6bn in assets in 2019 according to iShares, more than triple the amount recorded in 2018.”
ESG bonds, in addition, provide an element of diversification for fixed income portfolios.
“Given the important role of fixed income in portfolios, such offerings should prove useful for conscientious clients who value diversification,” the article said further. “ESG bond indices have generally proved more defensive than their parent benchmarks, losing less when prices were falling but lagging as assets have rallied. Importantly, ESG approaches in the bond space could help investors to both defend their portfolios and positively influence a large swathe of companies.”
“With debt issuance dwarfing equity issuance, bonds are an increasing source of corporate finance,” said Vasiliki Pachatouridi, head of Emea fixed income strategy at iShares. “Credit investors see an opportunity to exert meaningful influence over issues with ESG and disclosure practices.”
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