The days of fixed-income securities seem to be phasing out on rising rate concerns. The Federal Reserve hiked its key rates for the first time after almost a decade in December 2015, followed by the second hike in December 2016 and the third one in March 2017.
Though the Fed seems to be in no hurry in accelerating rate hikes and remained dovish, one thing is for sure that investors will have to leave the era of low interest rates sooner or later.
As a result, issuers are coming up with more and more newer concepts on bond investing. For example, active fixed income ETFs are flooding the market now. Not only this, issuers are targeting areas that have so far remained untapped like green bonds (read: Why Are Active Fixed Income ETFs Flushing the Market?).
It is less likely for oil prices to cross the $100-mark in the near term given the surge in supplies and pressure on demand recovery. In such a situation, the trend against oil investments should continue. Though the returns of all clean energy ETFs have not been stellar lately on an oil price slump, a fossil fuel free world is probably our future, no matter how harsh Trump’s outlook on it is. Issuers are thus increasingly betting on it.
This is why VanEck Vectors brought about a new ETF, namely the VanEck Vectors Green Bond ETF (NYSEARCA:GRNB).
GRNB in Focus
The fund looks to track the S&P Green Bond Select Index. As per the issuer:
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.
The 41-security fund has a global exposure with France taking about 23.8% of weight followed by Supra-national (20.7%), Germany (12.7%) and the U.S. (10.2%). Government (37%), Financial (29.1%) and Utilities ( 20.4%) are the top three sectors of the fund. Most of the bonds are quality in nature with 31.22% of bonds with AAA rating, 16.7% with AA rating, 28.6% with A rating and 14.4% with BBB rating. Maturity-wise, the fund has the highest weight toward the 7 to 10-year frame followed by a focus on 3 to 5-year frame. The fund charges a net expense ratio of 0.40%.
French Republic Government Bond Oat gets the highest exposure in the fund (7.54%) while Kreditanstalt Fuer Wiederaufbau (4.80%) and European Investment Bank (4.37%) round out the top three spots. The effective duration of the fund is 6.34 years, resulting in moderate interest rate risks while its maturity stands at 7.10 years, indicating a moderate default risk too (read Support the Environment and Profit with Fossil Fuel Free ETFs ).
How Does It Fit in the Portfolio?
The newly launched ETF can be a good choice for investors seeking exposure to the fast-growing space of clean energy ETFs. Lately, there has been a surge in launches on anything that is socially responsible. Clean energy or fossil fuel ETFs are no exception, no matter how actively President Trump opposes the Environment Protection Act.
Global leaders are striving to implement strategies for lowering carbon emissions and moderating the warming of the planet. Several clean energy and low-carbon ETFs have thus been rolled out to capitalize on the growing need to protect the environment and reduce greenhouse gas emissions.
However, an ETF in the bond structure on the same green theme will help investors mitigate volatility in the energy arena. After all, thanks to the upheaval in the oil patch, the renewable energy space has also not performed nicely. By investing in a green bond fund, investors can avail a steady stream of current income.
Though the competition is almost nil for the newly filed fund, there are plenty of low carbon or clean ETFs, which share the same theme. Some of these funds are the SPDR MSCI ACWI Low Carbon Target ETF (NYSEARCA:LOWC), iShares MSCI ACWI Low Carbon Target ETF (NYSEARCA:CRBN) and First Trust NASDAQ Clean Edge Green Energy ETF (NASDAQ:QCLN). But these funds are equity-based products, so GRNB’s approach is pretty unique in nature.
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