A growing market for a particular asset type doesn’t necessarily mean that there is an easy market for a related ETF.
Consider green bonds, issued by governments, banks, municipalities and corporations. The bonds aim to negate the effects of climate change by financing “green” assets in energy, water, heavy industry and the like. Over the past 11 years, some $500 billion in green bonds have been issued, including $138 billion in 2018 through November, the Climate Bonds Initiative says.
Driving demand are institutional investors who have set sustainability targets for their investments. But ETFs focused on green bonds are struggling to get investors’ assets and attention.
Among other things, green bonds tend to lack liquidity, and global tax incentives are inconsistent. On top of that, the money raised from green bonds isn’t linked directly to a specific project or property, so it is up to issuers to update investors on how the money is being used.
Despite these impediments, two U.S. ETF issuers have come out with green-bond products. The $25 million VanEck Vectors Green Bond ETF (GRNB), launched in March 2017, has a 0.30% net expense ratio and a 30-day yield of 1.66%. It tracks an S&P index, and 58% of its holdings are euro-denominated.
The $25 million iShares Global Green Bond ETF (BGRN), launched in March 2017, has a 0.20% net expense ratio and is similar to GRNB, but uses currency forwards to hedge its heavy nondollar exposure. It has yet to publish a 30-day yield.
“Unlike funds that are screening stocks and bonds generally on environmental, social or governance (ESG) factors, green-bond funds leave less room for subjectivity and allow investors to better measure environmental impact,” says William Sokol, ETF product manager at VanEck in New York.
Source Wall Street Journal