the SPDR Nuveen Municipal Bond ESG ETFs MBNE debuted earlier this month, and while the jury is still out on this product, as is the case with any exchange-traded fund that’s less than a month old, MBNE might turn out to be a rookie at the right time ETFs.
The reason is simple: as the number of equity-based environmental, social and governance ETFs grew in recent years, advisors and investors demanded more ESG fixed income strategies. These funds are coming in, and more recently, as MBNE proves, transmitters test ESG waters in the world of municipal bonds. This suggests that MBNE’s timing could be good.
“The sustainability bond market has exploded over the past two years. In fact, in the last year alone, green, social, sustainable and sustainability-linked bond issuance reached $1 trillion in 2021, more than 69% more than in 2020 ($606 billion). billion), and almost triple the $326 billion in 2019,” according to Morgan Stanley research.
Active management MBNE, which is under-advised by Nuveen, is trying to beat the Bloomberg 3-15 Year Blend (2-17) Municipal Bond Index and holds 81 municipal bonds. The combination of active management, ESGand municipal bonds could serve investors well via the ETFs structure.
“On the fixed income side, interactions with issuers often occur in the primary market, when issuers raise funds themselves. This provides a huge opportunity to engage with issuers and potentially have some influence over how that capital is directed,” notes Navindu Katugampola, head of sustainable investing at Morgan Stanley.
MBNE has a current yield of 4.25%, which is impressive considering that around 88% of the fund’s holdings are rated AAAAA or A, depending on the transmitter data.
The marriage of ESG and municipal bonds are also relevant due to the varying green financing needs of cities and states. ESG-friendly munis are another tool in the toolbox for ESG-conscious transmitters. For retail investors and clients, MBNE could be a clever way to play on a still young segment of the bond market.
“From renewable energy and infrastructure to affordable housing, schools and healthcare, these projects are going to require large-scale funding. Second, the diversity and breadth of the fixed income market allows us to address these issues through a variety of structures,” concludes Morgan Stanley.
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