UBS Asset Management has created a new ETF to extend the range of responsible investments to an aspect of great interest: UBS ETF – Sustainable Development Bank Bonds UCITS ETF enables an index-based investment in bonds issued by international development banks….
Andrew Walsh, Head of Passive & ETF Specialist Sales UK, UBS
“These bonds are very interesting for a number of reasons. As in Impact Investing, by investing in these bonds, one can provide relatively direct support to a series of projects that generate positive effects for society in general”, explains Andrew Walsh, Head of Passive & ETF Specialist Sales UK, UBS. “Investors also benefit from high liquidity of the securities and excellent creditworthiness of the supranational issuers. In recent years, these bonds have provided higher yields than US government bonds, this relative yield performance could vary going forward due to the fact that even bonds of development banks are exposed to interest rate risk“.
International and multilateral development banks, such as the World Bank or the European Bank for Reconstruction and Development, are responsible for providing financing for the social and economic progress of developing countries. Consequently, projects for the development of infrastructures or protection of the environment are particularly important.
The Solactive UBS Global Multilateral Development Bank Bond USD 25% Issuer Capped TR Index replicated by the new UBS ETF includes bonds issued in USD by international development banks with minimum rating of AA- (S&P) or Aa3 (Moody’s). To be included in the index, a security must have a minimum issue amount of USD 500 million and a residual maturity of at least twelve months. The index is weighted based on market capitalisation, but the weight of each individual issuer cannot exceed 25 percent.
The index has a yield-to-maturity of 2.77% and an average duration of 3.20 years (figures as of June 2018).
“These figures demonstrate the attractiveness to invest in the bonds of development banks”, explains Clemens Reuters, Global Head of Passive / ETF Investment Specialists. These securities combine yields of 10-30 basis points above the US Treasury yield with the possibility to do some good, as the funds collected are used to finance loans at very low rates in developing countries, with a view to reducing poverty and supporting the creation of infrastructures and growth of local economies.”
Responsible investments are no longer simply a trend. In just three years, from 2014 to 2017, the assets managed according to SRI principles in Germany, Austria and Switzerland increased from 875 billion to 2.7 trillion euros.