It seems as though reminders about the need to boost renewable energy investments arrive weekly. With that in mind, it’s not surprising that green bonds are gaining more notoriety in the investment community. Green bonds, which are issued by both corporate and sovereign entities, are used to finance clean technology and renewable energy projects. It’s a small, but growing part of the broader fixed income market and one accessible via the VanEck Green Bond ETF (GRNB).
Broad applications and a diverse issuer base are among the reasons why more market observers are paying attention to this burgeoning asset class. That could be a long-term positive for GRNB.
“Structurally, we see significant investment potential in green bonds issued by companies and governments across both emerging and developing economies as a critical source of financing for the global energy transition,” Kay Haigh, Goldman Sachs Asset Management’s co-chief investment officer and co-head of fixed income and liquidity solutions, observed in a recent report.
Compelling Outlook for GRNB
One of the fundamentals underpinning the GRNB thesis is easy to understand. Renewable energy spending estimates vary wildly. The overarching point is those forecasts are massive with some residing in the trillions of dollars.
Many companies and governments don’t have trillions of dollars sitting around with which to allocate to clean energy endeavors. But plenty of those entities have ambitious green energy agendas. That highlights the need for increased green bond issuance. Additionally, fresh, out-of-the-box solutions are needed to power the renewable energy transition. Green bonds can answer that call.
“In addition, the market volatility in recent years, which dragged on many previously successful green investment strategies, has underscored that the transition will be a complex, long-term process,” notes Goldman Sachs Asset Management (GSAM). “We believe success in this maturing market will require an approach that looks across asset classes to find promising investments aligned with investors’ key portfolio objectives, from managing risk to seizing opportunities.”
GRNB’s allure is heightened on multiple fronts. First, the universe of dedicated green or climate bond funds, including ETFs, in the U.S. is still sparse. Second, as highlighted by a 30-day SEC yield of 5.46%, the VanEck ETF doesn’t skimp on income.
Perhaps most important are the facts that GRNB doesn’t subject investors to significant credit or interest rate risk. Over 52% of the fund’s holdings are rated A, AA, or AAA and its duration is five years.
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