Among fixed income exchange traded funds relevant to the climate change conversation, the VanEck Vectors Green Bond ETF (NYSEArca: GRNB) is one of the founding fathers.
GRNB, which follows the S&P Green Bond U.S. Dollar Select Index, turned five years old in March and is becoming more pertinent by the day as advisors and investors scour the market for credible fixed income ideas with favorable sustainability and environmental, social, and governance (ESG) traits. GRNB aces the climate awareness/sustainability part of the fixed income conversation.
Something that’s alluring about green bonds and GRNB is that these assets give fixed income investors a direct, practical avenue for participating in green energy spending. The reason is simple: Green bonds are debt issued by companies and government to fund environmentally friendly projects.
“Investors can play a key role in transitioning to a carbon-neutral economy by allocating capital to funds and investments with positive environmental purposes. The incredible global rise in green and sustainable bond issuance signals growing interest from both issuers and investors in aligning investments with these larger environmental goals,” notes Parametric’s Lauren Kashmanian.
In the current environment, it’s difficult to be enthusiastic about bond ETFs, regardless of underlying investment objective, because interest rates are rising and the Federal Reserve isn’t close to halting its tightening cycle. Still, to GRNB’s credit, the ETF is performing in line with the widely followed Bloomberg U.S. Aggregate Bond Index this year while yielding about 35 basis points more than that index.
Additionally, green bonds are a growth corner of the bond market, indicating that investors realize that the asset class is one of the most viable ways to tie climate investing to bonds.
“In the US corporate credit market, total issuance of sustainable bonds grew to $123 billion in 2021, a 126% year-over-year increase. Green bonds made up more than half the year’s total ESG-labeled corporate bond issuance, at $67 billion,” adds Kashmanian.
GRNB holds 325 bonds and has a duration of 5.32 years, which could be a sign that its year-to-date slide is too much. That case is bolstered by the fact that GRNB is a global ETF, meaning that it’s not entirely comprised of domestic debt.
“In the first quarter of 2022, when sustainability- and ESG-focused funds saw net positive inflows of $5 billion, while traditional non-ESG fixed income funds saw net outflows of $85 billion. As the world moves to solve the critical problem of climate change, fixed income investors will play a pivotal role in allocating capital toward viable solutions,” concludes Kashmanian.
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