Investors chastened by recent volatility in the bond market – even supposedly docile arenas such as municipal debt and Treasuries – may want to look at green bonds, an asset class accessible via 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.
GRNB features a mix of agency, corporate and sovereign debt. The fund’s exposure to investment-grade corporates is relevant at a time of duress for that market. Year-to-date, GRNB is down just half a percent while the widely followed Markit iBoxx USD Liquid Investment Grade Index is lower by 3.16%.
“Sustainable bonds are a ‘defensive opportunity’ that credit investors should favor over non-green, investment-grade corporate notes,” Bloomberg reports, citing UBS Global Wealth’s head of credit, Thomas Wacker.
GRNB Looks Good
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.
GRNB, which turned three years old earlier this month, holds nearly 150 bonds. Over 76% of those issues carry investment-grade ratings and just 19.21% of that group have BBB ratings, according to VanEck data.
While the corporate bond market has experienced wider spreads at various points during the 2020, that hasn’t been the case with green debt.
“A company’s sustainable bonds tend to have tighter bid-ask spreads compared to its non-green notes, and that’s still evident despite the current market turmoil, said Wacker,” according to Bloomberg. “While risk premiums have blown out for both types of securities, the widening hasn’t been as pronounced for green debt.”
While green bonds remain a small part of the overall fixed income market, data confirm these environmentally-friendly instruments are growing and doing so at a time when more advisors and investors are mulling sustainability in their portfolios. Additionally, buyers of green bonds tend to be engaged for the long haul and often reduce exposure to other fixed income instruments before parting with sustainable debt.
“Moreover, investors that own green bonds tend to hold on to sustainable debt when selling down a portfolio because of their scarcity,” reports Bloomberg.
GRNB has a 30-day SEC yield of 2.29%.
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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.
