A growing variety of issuer types
Another benefit of taking a passive approach to green bond investing is diversification. In the case of our ETF range, this is true on many levels.
Firstly, our exposures are global, covering issuers from developed economies like France, Germany, and the US, but also emerging markets like China, India and Brazil.5
Secondly, the underlying indices in our range select green bonds from a variety of issuer types, including sovereigns (e.g. Belgium), sub-sovereigns (e.g. City of Paris), supranationals (e.g. European Investment Bank), development banks (e.g. Asian Development Bank) and corporates across sectors (e.g. Apple, Bank of America, Iberdrola).5
Finally, as with similar global aggregate exposures, our funds diversify across maturity buckets, meaning duration levels are comparable to traditional benchmarks.
It’s worth noting that active green bond managers may claim to offer better risk-adjusted returns through fundamental analysis and proprietary ESG frameworks. However, our research shows that some active green bond funds are not averse to ‘closet tracking’, where a fund ultimately behaves just like its reference benchmark. Why pay for an index hugger when you can get the real thing for a fraction of the cost?
Video: Transitioning from brown to green
5Lyxor International Asset Management, Solactive, as at 06/01/2020.