Lyxor has cross-listed the Lyxor Green Bond Monthly Hedged UCITS ETF on Deutsche Börse, offering access to the performance of euro- and dollar-denominated ‘green bonds’ issued by investment-grade companies.
The Lyxor Green Bond Monthly Hedged UCITS ETF, now listed on the Deutsche Börse, provides currency-hedged exposure to ‘green bonds’.
The ETF, which is linked to the Solactive Green Bond EUR USD IG Index, incorporates an in-built currency hedge, hedging the US dollar-denominated portion of the portfolio back to the euro.
The underlying index universe comprises all USD- and EUR-denominated investment-grade bonds that have been defined as green bonds by the Climate Bond Initiative.
According to this organisation, green bonds are “instruments in which the proceeds will be exclusively applied (either by specifying use of proceeds, direct project exposure, or securitization) towards new and existing green projects”, with green projects defined as projects and activities that promote climate or other environmental sustainability purposes.”
The bonds must also meet ongoing transparency and reporting requirements to ensure that proceeds are solely used for low-carbon and climate-enhancing projects.
To be included in the index, bonds must have at least €300m or $300m outstanding for bonds denominated in euros or US dollars, respectively, with a time to maturity of at least 12 months. Floating-rate notes, inflation-linked bonds, convertible bonds and municipal bonds are excluded from potential selection.
Index components are weighted by market value outstanding, with corporate issuers and government issuers capped at 5% and 10% respectively.
The index currently contains 164 green bonds, of which approximately 30% are AAA rated, 22% AA rated, 25% A rated, and 20% BBB rated. The yield to maturity of the index was 1.4% and its modified duration is 7.3 years. (Data as of 22 January 2018).
The fund debuted in March 2017 on Euronext Paris with the ticker code CLIM, and has a total expense ratio of 0.30%. Income is accumulated.
The market for green bonds is growing strongly, according to analysis from ratings agency Moody’s. They recently reported that global green bond issuance reached new highs during the third quarter of 2017, while total green bond volumes surged in the first nine months of the year versus a comparable year-ago period.
“Global green bond issuance totaled $32.7 billion in the third quarter of 2017, just topping $32.2 billion of issuance in the second quarter and setting a new quarterly issuance record for the decade-old market,” said Matthew Kuchtyak, a green bonds and ESG analyst at Moody’s. “Total green bond volumes for the first nine months of the year hit $94.5 billion, a 49% increase over the $63.2 billion of issuance during the first nine months of 2016.”
During the third quarter, 83 individual issuers brought 111 transactions to market, similar to the second quarter when a record 116 transactions appeared in the market by a record 85 distinct issuers. Average transaction size increased slightly in the third quarter with an average of $295 million per transaction, compared to $278 million in the second quarter.
US-based investors looking to play the green bond theme could consider the VanEck Vectors Green Bond ETF (GRNB US) listed on the NYSE Arca. This fund launched in March 2017 and tracks the S&P Green Bond Select Index.