Investors searching for sustainable ideas and bounce back candidates in the fixed income universe may want to consider the VanEck Vectors Green Bond ETF (NYSEArca: GRNB) – the gold standard among green bond funds.
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.
Like other corners of the bond market, green bonds and GRNB have been bitten by coronavirus selling, but the group looks like a compelling rebound idea.
“Many ESG investors are asking whether the downturn will have a lasting impact on green bonds and sustainable investments overall, as governments and central banks focus attention on maintaining functioning capital markets and providing support to battered economies,” said VanEck in a recent note. “We believe the green bond market will weather this storm, and that policymakers may have a once in a generation opportunity to advance a sustainability agenda, while they simultaneously look towards rebuilding the economy. Green bonds can be an integral piece of financing that recovery.”
Going Green With GRNB
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.
Data suggest green bonds haven’t been bad performers this year, which is notable considering some of the stress experienced in the corporate bond market.
“Performance of green bonds was in line with the broader fixed income market, after adjusting for sector and duration exposure,” notes VanEck. “That has provided validation to one of the most appealing aspects of green bonds, which is they allow investors to build sustainable fixed income portfolios without significantly impacting their risk and return profile.”
Low oil prices may appear to deter green investing, but in reality, the opposite may prove true. Plus, GRNB’s portfolios are highly rated with the bulk of its holdings residing deep into investment-grade territory while many traditional energy issues carry junk ratings.
“We continue to believe that energy companies, including companies involved in electricity generation and transmission, as well as oil and gas producers, must play a crucial role in the transition to a low carbon economy. Many have been active in the green bond market to finance investments in renewable energy,” according to VanEck.
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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.