Franklin Templeton is launching what it claims is Europe’s first actively-managed Euro green bond ETF.
The ETF is managed by David Zahn, head of European fixed income and Rod MacPhee, a fixed income portfolio manager.
The Franklin Liberty Euro Green Bond Ucits ETF will provide exposure to bonds supporting projects that are aligned to a low-carbon future and will aim to provide exposure to the European green bond market whilst maximising total returns.
The new ETF will be listed on the Deutsche Börse on April 30 and subsequently on the London Stock Exchange (LSE) and the Borsa Italiana on May 2.
Caroline Baron, head of ETF sales EMEA, said: “Demand is rising in Europe for high conviction ESG products due to increasing investor and regulatory pressure to incorporate green, ethical and governance factors into investment portfolios.”
The Franklin Liberty Euro Green Bond Ucits ETF will invest at least 70% of its net assets in greenlabelled bonds, with the balance made up of unlabelled bonds which are climate-aligned – bonds that are not labelled as green but are nonetheless financing solutions that contribute to a low-carbon future while at the same time reducing their own carbon intensity will be deemed to be eligible.
The Franklin Liberty Euro Green Bond Ucits ETF is priced at 30 basis points.
Zahn said: “In periods of risk aversion, green bonds exhibit lower volatility as investors tend to hold on to these bonds. Our data indicates that in both the primary markets and secondary markets, 72% of green bonds had tighter spreads than ordinary bonds after seven days, and 62% were tighter after 28 days respectively.
“We believe that active management gives us the best opportunity to benefit from these pricing opportunities. As for unlabelled green bonds, we think this universe offers compelling opportunities that are less well-known than their labelled green counterparts because there is comparatively less demand.”
Since the first issuance in 2007, Europe been at the forefront of the global green bond market, with cumulative issuance totalling €165bn.
Green refers to how the proceeds of the bond issue will be spent, typically a promise to use the proceeds to finance or re-finance, in part of fully, new or existing sustainable projects. Green bonds generally offer a fixed return and are most often issued by financial institutions, governments or companies in accordance with the Green Bond Principles – a voluntary set of principles that promote transparency, disclosure and integrity in the green bond market.