BlackRockMar 29 2017

BlackRock tracks MSCI Index with green bond fund launch

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BlackRock tracks MSCI Index with green bond fund launch

BlackRock has launched a Ucits tracker of bonds issued to fund projects with direct environmental benefits in response to burgeoning investor demand for environmental, social and governance (ESG) products.

Named the Green Bond Index Fund, the product will track and reflect the total return of the Bloomberg Barclays MSCI Global Green Bond Index.

The product will be managed by Ashley Schulten, head of climate solutions for fixed income, and portfolio manager Darren Wills – both of whom have a combined investment experience of over 35 years. The duo will be supported by the Global Fixed Income team. 

The charges for the fund are 0.18 per cent management fee with a fixed expense of 0.05 per cent, leading to an ongoing charge figure of 0.23 per cent.

The Green Bond Index fund is the fund house’s latest product that falls under the ESG banner.

Earlier this month, the investment manager launched an exchange traded fund offering exposure to Japanese companies with the highest ESG ratings.

The fund, iShares MSCI Japan SRI, explicitly excludes companies involved in alcohol, tobacco, gambling, civilian firearms, military weapons, nuclear power, adult entertainment and genetically modified organisms.

In February 2015, the firm launched BlackRock Impact, which is a global platform catering to investors with social or environmental objectives.

Provider view

Ms Schulten, said: “We see a strong interest in green bonds from clients we service as they seek to participate in climate-friendly and environmentally beneficial investments without making major changes to sector allocation or liquidity risk in their holdings. Interested clients vary from large institutional clients to family offices and retail investors.

Adviser view

Robin Keyte, director at Somerset based Keyte Chartered Financial Planners, said: “I think there has been an increase in demand for ESG products. I think it is down to consumers becoming more aware that they can invest their money in a way that matches up with their personal ESG convictions. It also helps that there has been an increase in public awareness of things like climate change, which most people accept is happening whereas the majority would have argued with otherwise 20 years ago.

“I think it is fantastic that a fund house as big as BlackRock is doing something to meet the demand for fixed income ESGs – there aren’t many of them around. It is not necessarily the case that they are riskier than conventional bonds. The performance and risk level of these types of products depends on the investment grade of bonds in the portfolio.”

Mr Keyte added: “Taking into account the wider economic picture, US interest rates are set to rise and therefore erode bond values.

Charges

Ongoing charge figure of 0.23 per cent.

Verdict

An increasing number of fund houses are seeking to profit from the ever-growing demand for ESG investments. The advent of the internet and the evolution of technology have heightened the general public’s awareness of ESG issues, and has undoubtedly caused many investors to take an active stance against investments that contracts their ethical convictions.

It is a strange time to launch a bond fund that does not fall under the high-yield banner – previously known as junk bonds. Global markets have factored in the potential for a number of hikes to US interest rates by the Federal Reserve, which is likely to be to the detriment of conventional bonds that have an inverse relationship with interest rates.