Rieger Report: ESG Fixed Income ETFs: Current State

ESG Fixed Income ETFs: Current State

Summary:

The growing green and/or Environmental, Social and Governance (ESG) fixed income market is a global phenomenon. In the past two years, there have been six ESG Exchange Trade Funds (ETFs) launched in the U.S. These ETFs offer passive, low cost exposure and as a result they are well positioned to be tools for ESG and or Socially Responsible Investing (SRI) for both global and domestic investors. Helping the cause, these funds are tracking quite well to both their underlying indices as well as the bond market segment(s) they are in. My expectations are that these ETFs will grow in assets relatively quickly due to the demand seen in ESG overall. More detail on the six U.S. listed ETFs can be found in the rest of this report.

Key Statistics:

  • $270.79 Million: Amount invested in ESG Fixed Income ETFs offered in the U.S.
  • 6: Number of U.S. listed ESG Fixed Income ETFs. All are passively managed to a designated index.
  • 2: Number of green bond focused ETFs representing the “E” in ESG.
  • 18.3 bps: Average passive management fee by number of funds.
  • 16.3 bps: Average passive management fee by Assets Under Management (AUM).

ESG Fixed Income ETFs by Inception Date

U.S.

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Europe as Comparison

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Sources: ETF sponsor websites. Table is provided for illustrative purposes only. Past performance is not a guarantee of future results. Data as of 4/8/2019.

ESG Fixed Income ETFs Listed in U.S. Assets Under Management

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Sources: ETF sponsor websites. Chart is provided for illustrative purposes only. Past performance is not a guarantee of future results. Data as 4/8/2019.

ESG Fixed Income ETFs Listed in U.S. Assets Under Management

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Sources: ETF sponsor websites. Chart is provided for illustrative purposes only. Past performance is not a guarantee of future results. Data as of 4/8/2019.

VanEck Vectors Green Bond ETF: GRNB

Objective:

VanEck Vectors® Green Bond ETF (GRNB®) seeks to replicate, as closely as possible, before fees and expenses, the price and yield performance of the S&P Green Bond Select Index (SPGRNSLT). The index is comprised of labeled green bonds that are issued to finance environmentally friendly projects, and includes bonds issued by supranational, government, and corporate issuers globally in multiple currencies.

Index: S&P Green Bond Select Index (SPGRNSLT)

Green or ESG Selection Index Criteria: Includes only bonds designated as a green bond by the Climate Bonds Initiative

Differentiating Factors:

  • Unhedged global currency exposure. Top two as of March 31, 2019: EURO over 61.1% and USD over 27.6%
  • Bonds of all quality are included with exception of defaulted securities however on 3.2% of net assets are below investment grade

oSupranational, government, quasi-government, Agency and corporate bonds are included

Website: VanEck Vectors ETFs

iShares ESG USD Corporate Bond ETF: SUSC

Objective:

The iShares ESG USD Corporate Bond ETF seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade corporate bonds issued by companies that have positive environmental, social and governance characteristics while exhibiting risk and return characteristics similar to those of the parent index of such index.

Index: Bloomberg Barclays MSCI U.S. Corporate ESG Focus Index

Green or ESG Selection Index Criteria: Employs environment, social and governance (“ESG”) rating inputs from MSCI ESG Research & Bloomberg Index Services Limited.

Differentiating Factor:

  • Only investment grade USD Corporate bonds included

Website: iShares.com

iShares ESG 1-5 Year USD Corporate Bond ETF: SUSB

Objective:

The iShares ESG 1-5 Year USD Corporate Bond ETF seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade corporate bonds having remaining maturities between one and five years and issued by companies that have positive environmental, social and governance characteristics while exhibiting risk and return characteristics similar to those of the parent index of such index.

Index: Bloomberg Barclays MSCI U.S. Corporate 1-5 Year ESG Focus Index

Green or ESG Selection Index Criteria: Employs environment, social and governance (“ESG”) rating inputs from MSCI ESG Research & Bloomberg Index Services Limited.

Differentiating Factor:

  • Only short term USD investment grade corporate bonds included

Website: iShares.com

Nuveen ESG U.S. Aggregate Bond ETF: NUBD

Objective:

The fund employs a passive management (or “indexing”) approach, investing in a diversified portfolio of U.S. investment grade bonds that satisfy certain environmental, social and governance (“ESG”) criteria. The fund seeks to track the investment results, before fees and expenses, of the Bloomberg Barclays MSCI US Aggregate ESG Select Index.

Index: Bloomberg Barclays MSCI U.S. Aggregate  ESG Select Index

Green or ESG Selection Index Criteria: Employs environment, social and governance (“ESG”) rating inputs from MSCI ESG Research & Bloomberg Index Services Limited.

Differentiating Factor:

  • Investment grade USD debt issued by corporate, residential and commercial mortgage-backed securities and non-U.S. governments and corporations are included

Website: Nuveen.com

iShares ESG U.S. Aggregate Bond ETF: EAGG

Objective:

The iShares ESG U.S. Aggregate Bond ETF (the “Fund”) seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade bonds from issuers generally evaluated for favorable environmental, social and governance practices while exhibiting risk and return characteristics similar to those of the broad U.S. dollar-denominated investment-grade bond market.

Index: Bloomberg Barclays MSCI U.S. Aggregate  ESG Focus Index

Green or ESG Selection Index Criteria: Employs environment, social and governance (“ESG”) rating inputs from MSCI ESG Research & Bloomberg Index Services Limited.

Differentiating Factors:

  • Investment grade U.S. Treasury bonds, non-securitized government related bonds, corporate bonds, residential and commercial mortgage-backed securities and asset backed securities are included (as a result, modestly broader than Nuveen’s NUBD)
  • 10bp management fee is the lowest of the six ETFs tracked in this report

Website: iShares.com

iShares Global Green Bond ETF: BGRN

Objective:

The iShares Global Green Bond ETF (the “Fund”) seeks to track the investment results of an index composed of global investment-grade green bonds that are issued to fund environmental projects, while mitigating exposure to currency fluctuations versus the U.S. dollar.

Index: Bloomberg Barclays MSCI Green Bond Select (USD Hedged) Index

Green or ESG Selection Index Criteria: Designated as a green bond by the MSCI

Differentiating Factors:

  • Currency hedged
  • Only investment grade bonds included
  • Supranational, government, quasi-government, Agency and corporate bonds are included

Website: iShares.com

Data Resources Used in this Report

  • The data used in this report came from the ETF sponsor websites and Yahoo! Finance.
  • Not all the ETF sponsor websites report the same information and may do so at different time frames.
  • ETF “Sector” classifications can be subjective. The sector designation is my opinion based on the stated objective of the ETF.
  • The data in spreadsheet form is available by contacting the Rieger Report.
  • I do my best to make this an accurate report. In the event of data errors or omissions please contact JR@RiegerReport.com.

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