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The equities ETFs on the clean-energy theme is already overcrowded. Now, the bond ETFs on the same idea will probably mushroom in the coming days. Though the OPEC and non-OPEC output deal has offered some much-needed relief to oil prices lately, its proper execution is still to be seen.
And even if it is accomplished, it is less likely for oil prices to cross the $100-mark in the near term. In such a situation, the trend against oil investments should be in fine fettle. Though the returns of all clean energy ETFs have not been stellar lately on an oil price slump, a fossil fuel free world is probably our future and issuers are increasingly betting on it.
Already VanEck Vectors filed for a green bond ETF in late November. The ticker code and expense ratio are yet to be disclosed.
Proposed Fund in Focus
The fund looks to track the Green Bond Index. As per the issuer, “green bonds are bonds whose proceeds are used principally for climate mitigation, climate adaptation or other environmentally beneficial projects, such as, but not limited to, the development of clean, sustainable or renewable energy sources, commercial and industrial energy efficiency, or conservation of natural resources.”
The index contains corporate, quasi-sovereign, government-related and securitized green bonds. These will be both investment grade and junk in nature. However, junk bonds will not take more than 20% of the index. And a particular issuer will not account for more than 10% of the Index. As of October 28, 2016, the Index had 155 bonds issued by 88 issuers. The weighted average maturity of the Index was 6.14 years, resulting in moderate default risks (read Support the Environment and Profit with Fossil Fuel Free ETFs ).
How Does It Fit in the Portfolio?
The newly filed ETF can be a good choice for investors seeking exposure to the fast-growing pace of clean energy ETF. Lately, there has been a surge in launches on anything that is socially responsible. Clean energy or fossil fuel ETFs were no exception.
Global leaders are striving to implement strategies for lowering carbon emissions and moderating the warming of the planet. Already, China and the U.S. have struck a deal to lessen carbon emissions. The agreement calls for carbon emission reductions by 26% to 28% in the U.S. by 2025. Notably, China and America are the two largest emitters of greenhouse gases (read: Fight Global Warming with These ETFs).
Several clean energy and low-carbon ETFs have thus been rolled out to capitalize on the growing need to protect the environment and reduce greenhouse gas emissions.
However, an ETF in the bond structure on the same green theme will help investors mitigate volatility in the energy arena. After all, thanks to the oil price collapse and global slowdown concerns, the renewable energy space has also not performed nicely. By investing in a green bond fund, investors can avail a steady stream of current income (read: What Lies Ahead for Alternative Energy ETFs?).
ETF Competition
Though the competition is almost nil for the newly filed fund, there are plenty of low carbon or clean ETFs which share the same theme.Some of these funds areSPDR MSCI ACWI Low Carbon Target ETF , iShares MSCI ACWI Low Carbon Target (CRBN - Free Report) , First Trust NASDAQ Clean Edge Green Energy ETF (QCLN - Free Report) and PowerShares Global Clean Energy ETF (PBD - Free Report) .
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Is a Green Bond ETF Coming Soon?
The equities ETFs on the clean-energy theme is already overcrowded. Now, the bond ETFs on the same idea will probably mushroom in the coming days. Though the OPEC and non-OPEC output deal has offered some much-needed relief to oil prices lately, its proper execution is still to be seen.
And even if it is accomplished, it is less likely for oil prices to cross the $100-mark in the near term. In such a situation, the trend against oil investments should be in fine fettle. Though the returns of all clean energy ETFs have not been stellar lately on an oil price slump, a fossil fuel free world is probably our future and issuers are increasingly betting on it.
Already VanEck Vectors filed for a green bond ETF in late November. The ticker code and expense ratio are yet to be disclosed.
Proposed Fund in Focus
The fund looks to track the Green Bond Index. As per the issuer, “green bonds are bonds whose proceeds are used principally for climate mitigation, climate adaptation or other environmentally beneficial projects, such as, but not limited to, the development of clean, sustainable or renewable energy sources, commercial and industrial energy efficiency, or conservation of natural resources.”
The index contains corporate, quasi-sovereign, government-related and securitized green bonds. These will be both investment grade and junk in nature. However, junk bonds will not take more than 20% of the index. And a particular issuer will not account for more than 10% of the Index. As of October 28, 2016, the Index had 155 bonds issued by 88 issuers. The weighted average maturity of the Index was 6.14 years, resulting in moderate default risks (read Support the Environment and Profit with Fossil Fuel Free ETFs ).
How Does It Fit in the Portfolio?
The newly filed ETF can be a good choice for investors seeking exposure to the fast-growing pace of clean energy ETF. Lately, there has been a surge in launches on anything that is socially responsible. Clean energy or fossil fuel ETFs were no exception.
Global leaders are striving to implement strategies for lowering carbon emissions and moderating the warming of the planet. Already, China and the U.S. have struck a deal to lessen carbon emissions. The agreement calls for carbon emission reductions by 26% to 28% in the U.S. by 2025. Notably, China and America are the two largest emitters of greenhouse gases (read: Fight Global Warming with These ETFs).
Several clean energy and low-carbon ETFs have thus been rolled out to capitalize on the growing need to protect the environment and reduce greenhouse gas emissions.
However, an ETF in the bond structure on the same green theme will help investors mitigate volatility in the energy arena. After all, thanks to the oil price collapse and global slowdown concerns, the renewable energy space has also not performed nicely. By investing in a green bond fund, investors can avail a steady stream of current income (read: What Lies Ahead for Alternative Energy ETFs?).
ETF Competition
Though the competition is almost nil for the newly filed fund, there are plenty of low carbon or clean ETFs which share the same theme.Some of these funds areSPDR MSCI ACWI Low Carbon Target ETF , iShares MSCI ACWI Low Carbon Target (CRBN - Free Report) , First Trust NASDAQ Clean Edge Green Energy ETF (QCLN - Free Report) and PowerShares Global Clean Energy ETF (PBD - Free Report) .
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>