Sustainable investing is making its way to the fixed income landscape in significant fashion, and that could be a positive for exchange traded funds such as the VanEck Vectors Green Bond ETF (NYSEArca: GRNB).
GRNB is the original ETF dedicated to green bonds, one of the largest, fastest-growing segments of the sustainable bond space. Green bonds resonate with fixed income investors due in part to the concept being easy to explain. Companies and governments issue green debt to fund environmentally conscious projects, and that market is growing at an exponential rate.
In the third quarter, green, social, sustainable, and sustainability-linked bond issues jumped to $217 billion, a 25% year-over-year increase. Green bonds accounted for more than half that total.
“Across the four segments, there were $115 billion of green bonds, $29 billion of social bonds, $52 billion of sustainability bonds and $21 billion of sustainability-linked bonds. Volumes across the four labels totaled $775 billion in the first nine months of 2021, nearly double the $402 billion issued in the first three quarters of 2020,” according to Moody’s Investors Service.
The $100 million GRNB, which turns five years old next March, follows the S&P Green Bond U.S. Dollar Select Index. That benchmark is comprised of dollar-denominated green debt from corporate, government, and supernational issuers.
Obviously, bonds are long-term assets for most investors, and that adds to the allure of GRNB because the green and social bond movement is in its early innings, and green bonds are the leaders of that momentum.
“Full-year issuance of GSSS bonds is set to top a collective $1 trillion in annual issuance for 2021. Across the individual segments, we anticipate volumes will eclipse $500 billion of green bonds, $200 billion each of social bonds and sustainability bonds and $100 billion of sustainability-linked bonds,” adds Moody’s.
That’s an annual record and indicates that investors want green and sustainability strategies in the bond market. GRNB can be a force here because its 2.02% 30-day SEC yield is decent by today’s standards, it provides global diversification (roughly 20 countries are represented in the fund), and its credit profile is sound, as nearly 70% of its 294 holdings carry investment-grade ratings.
GRNB also offers some sector diversification, which is relevant because more companies beyond financial institutions (40.1% of GRNB) are getting into the green bond game.
“Financial institutions were also meaningful contributors to global green bond volumes in the third quarter with $24 billion of issuance accounting for 21% of the quarterly total. Through the first nine months of the year, non-financial corporates have issued $170 billion of green bonds, accounting for a leading 45% share of the global total,” notes Moody’s. “The two largest transactions from nonfinancial corporates in the third quarter included a €2 billion deal from Mondelez International, Inc. and a $2 billion deal from Walmart, both in September.”
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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.
