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Exploring the Green Bonds ETFs scenery in 2022
Green bonds have witnessed some decent inflows this year, garnering over $140 million (net) from investors. These ESG investment products are fixed-income instruments used to fund projects that have a positive impact on the environment or climate benefits. This includes renewable energy, sustainable resource use, conservation, clean transportation and adaptation to climate change. By adding green bonds to a portfolio, an investor is funding projects that have a strong impact on net-zero ambition.
Most popular Green Bonds ETFs in America in 2022Among the most popular green bonds funds, this year is the recently launched (January 2022) Wealthsimple North American Green Bond Index ETF (WSGB), which received $156 million since inception. The fund seeks to replicate the performance of the Solactive Green Bond USD CAD DM CAD hedged Index and invests primarily in investment-grade green, social, and sustainable bonds, with its foreign currency exposure, hedged back to the Canadian dollar. WSGB has a total expense ratio of 0.25% and trades on the NEO Exchange.
Other green bonds ETFs available in America include iShares USD Green Bond ETF (BGRN), Horizons S&P Green Bond Index ETF (HGGB), and VanEck Vectors Green Bond ETF (GRNB).
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Fixed Income ETFs Weekly Recap (March 14 to 18, 2022)
Fixed Income ETFs welcomed over $6.5 billion in net inflows between March 14th and March 18th and roughly $24.6 billion overall this year.
America-domiciled Fixed Income ETFs had the lion's share garnering $5.4 billion of the total net inflows. Meanwhile, Europe-domiciled Fixed Income ETF witnessed received $1.02 billion after witnessing outflows of -$1.4 billion in the prior week.
The search for yield has been a constant catalyst for this product segment with no end in sight for the Russia-Ukraine war. Also weighing on the markets is the changing monetary policies amid rising inflation. Last week, the U.S. central bank lifted its benchmark Federal Funds Rate by 0.25% and signalled six more hikes this year.
By notching up rates, the Fed is indirectly – through banks – raising borrowing costs in the hopes of easing consumer demand that may be pushing prices higher. This process affects the bonds markets since higher interest rates mean lower prices for existing bonds. Consequently, the changes will trigger a reshuffling of fixed income investors' strategies which can be visible through tracking fund flows into Fixed Income ETFs.
America's Fixed Income ETFs top fund actionAmong the top inflows receivers last week were iShares iBoxx $ High Yield Corporate Bond ETF (HYG, $1.14 billion), iShares 20+ Year Treasury Bond ETF (TLT, $619 million), and iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB, $457 million).
HYG, the largest recipient, seeks to track the Markit iBoxx USD Liquid High Yield Index and invests in U.S. denominated high-yield corporate bonds. In terms of sector exposure, consumer cyclical has the highest weighting (19.6%), followed by communications (18.5%), consumer non-cyclical (14.9%) and energy (12.08%). 27% of the underlying corporate bonds have a maturity of 7-10 years, 24.3% have 3-5 years, and 23.4% have 5-7 years. More than half of the constituents are BB-rated, 34.4% B rated, and 10% CCC rated. HYG has a total expense ratio of 0.48% and trades primarily on the NYSE Arca.
On the other side of the fund flows spectrum, Schwab U.S. TIPS ETF (SCHP, -$203 million), iShares Short Treasury Bond ETF (SHV, -$184 million), and Vanguard Total Bond Market ETF (BND, -$175 million) were among the biggest flow bleeders last week.
SCHP seeks to track the Bloomberg US Treasury Inflation-Linked Bond Index (Series-L) and invests in the overall maturity spectrum of the U.S. TIPS market. SCHP has a total expense ratio of 0.05% and trades primarily on the NYSE.