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A Socially Responsible Bond ETF Hits the Market

Sanghamitra Saha

Socially relevant funds are in vogue. Companies that focus heavily on environmental, social and governance (ESG) practices are being craved by investors, if we go by BlackRock. No wonder, issuers have flocked to this emerging concept and are rolling out new products with gusto.

Renowned issuers like iShares, Barclays, OppenheimerFunds, State Street, FlexShares and ALPS have already made their presence felt in this category (read: Global ETFs Gather $4 Trillion AUM: What's Behind the Boom?).

While several different kinds of socially responsible funds like catholic values, fossil fuel free, climate leadership or workplace equity have been already rolled out, lately a bond ETF has been introduced in this space. For the first time, the space has a fixed-income ETF.

Let’s take a look at Inspire Corporate Bond Impact ETF IBD.

Inside IBD

The underlying index of the fund – the Inspire Corporate Bond Impact Equal Weight Index – consists of about “250 investment grade, intermediate term corporate bonds issued by some of the most inspiring large cap “blue chip” companies in the U.S., as determined by Inspire’s revolutionary Inspire Impact Score methodology.”

The constituents of the fund are expected to leave a positive impact on the investment world, giving the portfolio a socially responsible angle. The index is equally weighted, rebalanced quarterly and calculated on a total return basis in U.S. dollars.

The net expense ratio of the fund is 0.65%. The fund’s expenses are lower than the average ETF expense of 0.78%, as per the factsheet.

U.S. dollars account for about 3.17% of the portfolio. Valero Energy Corp 9.375% 3/15/2019 (1.03%), Spectra Energy Capital 8% 10/1/2019 (1.03%) and Valero Energy Corp 6.125% 2/1/2020 (1.01%) are the top three holdings of the fund.

How Does It Fit in a Portfolio?

As per the latest data by Morningstar, 70% of all investors are interested in socially responsible investing, while more than 80% of millennials intend to be socially responsible while making investment decisions (read: Guide to Socially Responsible ETFs).

As per the source, lesser focus on environmental issues by the companies may result in lawsuits, fines, and damages. For example, “businesses that use less water and less power have lower costs and operate more efficiently.” These facts make it clear why the newly launched fund should also draw investors’ attraction.

As far as the fixed-income concept goes, the product offers stability as it focuses on investment-grade bonds that involve less default risks. With this bond ETF, investors will get to enjoy a steady stream of regular current income (read: What Bond ETF Inflows are Saying About Fixed Income Trade).  

Any Competition?

The product should not face any competition as it is the first fixed income ETF with socially responsible characteristics. However, if it is compared with other socially responsible funds, IBD can see the likes of iShares MSCI KLD 400 Social ETF DSI, Global X S&P 500 Catholic Values ETF CATH or iShares Sustainable MSCI Global Impact ETF MPCT as its rivals.

And if the fund is compared with investment grade corporate bond ETFs, it may see iShares iBoxx $ Investment Grade Corporate Bond ETF LQD,Vanguard Intermediate-Term Corporate Bond ETF VCIT and iShares Intermediate Credit Bond ETF CIU as potential threats (read: 6 Best Bond ETFs of 2016 -- High Yield Tops).

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