Fund review: BlackRock Sustainable Bond ETF

Fund review: BlackRock Sustainable Bond ETF

BlackRock has launched a new exchange-traded fund (ETF) that focuses on euro-denominated sustainable corporate bonds. Sitting within the iShares range of funds, the iShares Euro Corporate Bond Sustainability Screened 0-3yr Ucits ETF tracks the Barclays MSCI Euro Corporate 0-3 year Sustainability ex-Controversial Weapons index. The fund comes amid growing demand for investments that incorporate environment, social and governance (ESG) factors. The product is an extension of the fund’s current ESG range, which includes active funds, index funds and ETFs. The bonds issued come with an ESG rating of BBB or above.

Companies that form part of the portfolio go through a positive screening process and are rated on 37 different ESG factors including carbon emissions. The index excludes investment in companies involved with controversial weapons, including cluster bombs, land mines and chemical and biological weapons. Bonds included in the index are issued by corporates from across Europe, the Americas and Asia Pacific.

The ETF is a physical replication of the index, will have 454 holdings and has a total expense ratio (TER) of 25 basis points. BlackRock currently manages more than $200bn (£139.8bn) of assets across ESG-screened and impact funds globally. However, this is the company’s first move into sustainable bond ETFs.

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Social impact investing has seen growing demand throughout the past few years, with assets in this sector growing by 61 per cent globally to $21.4tn (£14.9tn) from 2012 to 2014. Awareness among investors is also on the rise, and many now prefer investing their money not just with the objective of a monetary return but also with the aim of contributing to a larger social wellbeing.

Being an ETF, the latest product from BlackRock aims to be cost-effective, appealing to a bigger audience. The Chart shows the ETF’s sector allocation and it is worth noting that by far the highest allocation is to financials.

The inclusion of bonds from across Europe, the Americas and Asia-Pacific diversifies exposure and spreads risk. The ETF has its highest allocation to France – 25 per cent.