In line with growing awareness and demand for ESG or clean investing, Invesco recently launched a new ETF called
Invesco MSCI Green Building ETF GBLD. “Green Building” companies include the design, construction, redevelopment, retrofitting, or acquisition of green-certified properties to encourage mechanisms for climate change mitigation and setting up of a carbon-free world, per the issuer. The fund is apparently the first green bond ETF.
Let’s delve a little deeper.
The fund is based on the MSCI Global Green Building Index. The 73-stock fund holds Boston Properties (6.25%), Unibail-Rodamco-Westfield (4.43%) and Nippon Building Fund (3.83%) in the top three holdings.
Japan (26.69%) is at the top-most position in the country allocation, followed by United States (26.61%) and France (11.20%). Real Estate (92.98%) and Consumer Discretionary (7.02%) are the top two sectors of the fund. The fund charges 39 bps in fees.
How Does It Fit in a Portfolio?
The launch came at the opportune moment amid a surge in demand for ESG investment, both in equities and fixed income, with total assets in the sector rising 50% to a record $1.7 trillion last year, according to Morningstar,
as quoted on Financial Times (read: 4 Factors Why ESG ETFs Are Likely to Heat Up in Q2).
GBLD is designed to invest in real estate companies that conform to high energy efficiency and boast environment friendly construction materials and indoors. As a result, the fund wins on both factors – ESG as well as the high-yielding nature of real estates.
MSCI Global Green Building Index yielded
3.67% as of Mar 31, 2021 versus the 1.72% yield recorded by the MSCI World Index and 1.70% yield in the MSCI ACWI IMI Index. In contrast, iShares Global REIT ETF ( REET Quick Quote REET - Free Report) yields 2.26% annually.
As far as valuation is concerned, the green building index looks fairly valued as it has a forward P/E of 18.63X versus 19.65X in the MSCI ACWI IMI Index, 25.16X P/E of
SPDR S&P 500 ETF ( SPY Quick Quote SPY - Free Report) , 18.6X P/E offered by REET, 12.0X P/E of Vanguard Global ex-U.S. Real Estate Index Fund ETF ( VNQI Quick Quote VNQI - Free Report) and 38.2X P/E of regular U.S. real estate ETF Vanguard Real Estate Index Fund ( VNQ Quick Quote VNQ - Free Report) .
As far as returns are concerned, the MSCI Global Green Building Index is up 4.78% this year versus 5.14% gains seen in MSCI All Country World Investable Market Index. In the past year, the concerned green building index has added 23.84% versus the 57.58% advancement in the MSCI All Country World Investable Market Index.
Notably, VNQ is up 15.8% this year and 40% past year while VNQI is up 6% this year and 34.6% past year. The fund REET (which is heavy on the United States) has added 13.6% this year and 45.3% past year. So, we can understand that the fund index’s U.S. presence has driven its performance in the past while its international exposure makes the real estate segment undervalued and poised for a rally in the coming days.
Can GBLD See Success?
Given the efforts to make the globe green, the concept will surely thrive over the long run. U.S. President Joe Biden is known as promoting clean energy. The United States once again entered the Paris climate accord – adopted in 2016 – in the Biden era. Biden wants the United States to achieve a 100% clean energy economy and net-zero emissions, no later than in 2050.
New Zealand recently became the
first country to launch a law that mandates banks, insurers and investment managers to report the impacts of climate change on their business. China’s president Xi too reiterated his vows to turn China carbon neutral by 2060. China will start tapering coal use from 2026, Xi said last week. Europe’s efforts to become a green continent is also pretty prevalent. All these factors should help GBLD amass considerable assets.
The regular global real estate fund REET has amassed about $3 billion in assets since July 2014. So, we expect the same success in GBLD too, especially given its more unique investment objective.
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