Green bonds are increasingly a part of the fixed income landscape, and there is an appetite for these issues. The success of the VanEck Vectors Green Bond ETF (NYSEArca: GRNB) confirms it.
In their traditional form, green bonds are debts used by companies and governments to finance environmentally friendly projects. With governments prioritizing climate awareness and sustainability, there are a myriad of possibilities for increasing green debt issuance, including in the municipal bond market. New VanEck HIP Sustainable Muni ETF (SMI) draws on this theme.
SMI, which debuted last week, is an actively managed ETF. Active management could serve investors in the green municipal bond space, a corner of the bond market that is still in its infancy.
SMI “seeks current income generally exempt from federal income tax by investing in high quality municipal debt securities that have been issued to finance operations or projects that support or advance sustainable development, as well as to promote positive social and environmental results ”, according to VanEck.
Green bonds are a rising slice of the large municipal bond market, but the audience for these bonds and the SMI could be large.
For starters, many investors are adopting environmental, social and governance (ESG) and climate-sensitive strategies and calling for more bond options in these areas. Second, municipal bonds have long been preferred assets for retirees, in part due to high credit quality, low risk of default, and tax advantages. As climate change continues to permeate national conversations, more and more investors, including those in older demographics, may be looking to marry bonds with going green.
“Because they are designed to benefit the environment, green bonds can include additional information for investors – and some state and local government green bond issuers have included independent verification of the project’s environmental impact. . These characteristics mean that investors may have additional considerations when evaluating whether to buy green bonds, ”according to the Municipal Securities Rulemaking Board (MSRB).
With an effective maturity of 6.12 years, SMI is in the mid-term camp and its credit quality is solid with 83.62% of its holdings residing in investment grade territory, according to data from VanEck. The other bonds of the fund are not yet rated. Green munis issued in New York and California combine for 60.6% of the weight of the new ETF, and Pennsylvania accounts for 15%.
SMI charges 0.24% per annum, or $ 24 on a $ 10,000 investment, which pays off among active funds.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.