High Yield is Making Its Way into ESG Investing

The search for yield is certainly a global phenomenon given the low rates offered in government debt around the world. It opens the doors for ESG funds to shine by offering high yield bond options as in the case of BlackRock’s iShares € High Yield Corp Bond ESG UCITS ETF (EHYD) and the iShares $ High Yield Corp Bond ESG UCITS ETF (DHYD).

The concept married high yield with the growing ESG space that is starting to gain more traction in the capital markets worldwide.

“As evidence increasingly shows that sustainability-related factors can help investors build more resilient portfolios, we are moving into an era where sustainable investing will be the standard way to invest,” said Meaghan Muldoon, head of sustainable investing EMEA at BlackRock. “Our commitment at BlackRock is to provide the choice of products that allow investors at different stages of this journey to allocate to different markets efficiently and without paying a premium.”

“Against a backdrop of a search for yield, and enhanced coverage across the credit and geographic spectrum, more and more investors can now invest in fixed income strategies while meeting their sustainability goals,” Muldoon added.

Fund facts per a Morningstar report:

  • Both funds will track the Bloomberg Barclays MSCI Euro Corporate High Yield SRI and Sustainable BB+ Bond Index and the Bloomberg Barclays MSCI US Corporate High Yield SRI and Sustainable BB+ Bond Index respectively.
  • The fund will have an expense ratio of 0.50%.

“The investment giant said the ETFs will enable investors to achieve a more sustainable high-yield exposure through debt issued by companies with the strongest commitment to ESG, while also screening out companies involved in controversial business activities,” the Morningstar report noted.

An influx of capital into safe haven government bonds have put a strain on Treasury yields, causing investors to search every corner of the bond market for that seemingly elusive yield. However, there are still high yield bond ETFs that are providing fixed income investors with the yield they desire.

With the high yield market getting more risky in this extended bull run, it’s necessary for investors to shed some of that risk and get more strategic with their capital allocation. This could mean looking to options like investment-grade debt for higher yielding income sources.

Investment-grade corporate bond-focused fixed-income ETF options include the  iShares Intermediate Credit Bond ETF (NASDAQ: CIU),iShares iBoxx $ Investment Grade Corp Bond ETF (NYSEArca: LQD) and Vanguard Interim-Term Corp Bd ETF (NASDAQ: VCIT).

For more trends in fixed income, visit the Fixed Income Channel.