Advisors and investors are looking for avenues for sustainable investing in the bond market and green bonds stand ready to meet that demand. One of the top choices for accessing that asset class is the VanEck Vectors Green Bond ETF (NYSEArca: GRNB).
GRNB tracks the S&P Green Bond Select Index, which is “comprised of labeled green bonds that are issued to finance environmentally friendly projects, and includes bonds issued by the supranational, government, and corporate issuers globally in multiple currencies,” according to VanEck.
Green bonds are debt securities issued to finance projects that promote climate change mitigation or an adaptation or other environmental sustainability purposes. The new breed of green bonds gained momentum in the global market ever since the European Investment Bank issued the first green bond in 2007.
Green bonds still represent a small part of the overall bond market. Slowly, but surely that’s starting to change.
“Green bonds set another record year in 2019, spurred by strong demand for responsible investment,” according to a recent note from Refinitiv. “Total proceeds of US$173.4bln were raised from green bonds issued globally in 2019, a 31% increase from the year prior, as a number of issues grew 31.5%. The attached report analyzes 2019’s global green bonds trends.”
Green bonds typically carry high credit quality as highlighted by the fact that about 61% of GRNB’s holdings are rated AAA, AA or A. That’s a significantly higher percentage of A ratings than are found in traditional corporate bond funds.
GRNB, which turns three years old in March, holds nearly 130 issues and has an effective duration of 4.89 years, putting it in the intermediate term category.
“As the growth of the green bond market continues unabated, the types of issuers have grown increasingly diverse as well,” said Refinitiv senior analyst Elaine Tan in a note. “Aside from government and financial institutions, corporate borrowers – like Engie SA, Apple Inc, Pepsi Co, Starbucks, and Verizon Communications – from various sectors such as energy & power, technology, retail, telecommunications, etc., have continued to emerge since 2016.”
GRNB is trading modestly higher to start in 2020.
For more investing strategies, visit our Tactical Allocation 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.