UBS Asset Management (UBS AM) has multiplied the assets under management of its sustainable exchange traded funds (ETFs) by nearly 10 in the last three years.
Adding to this, Clemens Reuter, head of ETF and passive investment specialists at UBS AM, said the firm plans to add more sustainable ETFs this year, as it responds to growing investor appetite for specific sustainability products.
While, previously, investors preferred equity-focused products, UBS said that sustainably-screened bond ETFs are gaining ground in debt markets.
Among the recently launched products by UBS is the JP Morgan Global Government ESG Liquid Bond Index, which is exposed to liquid global government bonds based on market capitalisation, and screens out sovereigns that do not score adequately on ESG criteria.
Multilateral development bank debt
Another example is the iShares USD Development Bank Bonds Ucits ETF, which tracks the FTSE World Broad Investment-Grade USD MDB Bond Capped Index.
The ETF has assets of over $120m (€107m) in seed capital from UBS.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said that development bank debt is seen as an attractive means to diversify portfolios and invest in the UN Sustainable Development Goals (SDGs).
“Exchange-traded funds will continue to represent an important route for clients to access this growing asset class,” a spokesperson from UBS told Expert Investor.
He explained: “The multilateral development bank (MDB) model involves issuing debt in international capital markets at a low cost and lending the proceeds to borrowers in developing countries.
“Typically, MDBs fund infrastructure and other development projects, as well as developing country governments, with explicit guidelines governing the use of the proceeds. Thanks to this mandate, MDB bonds are an impact investment asset class whose inclusion increases a portfolio’s positive impact on people and the planet.”
The FTSE index offers exposure to dollar denominated debt securities issued by, for example, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank and the World Bank Group’s International Bank for Reconstruction and Development.
Each issuer carries a AAA credit rating from at least one major ratings agency and has pledged support for critical SDGs, UBS said.
The ETF market in Europe has been growing at a compound annual growth rate of 22% over the past three years, the firm added, citing UK research and consulting firm ETFGI.