BlackRock has rolled out a new bond ETF in Europe that is likely to appeal to investors seeking to allocate capital in line with socially responsible principles.
Development bank bonds seek to finance projects with a positive social and economic impact in developing countries.
Debuting on Euronext Amsterdam, the iShares $ Development Bank Bonds UCITS ETF (DDBB NA) offers access to a portfolio of high-quality bonds issued by development banks.
It has been listed in US dollars and comes with seed capital of $44 million. Additional listings across other European exchanges are anticipated.
Development banks are supranational institutions that have been created to finance projects with a positive social and economic impact in developing countries. Examples of such institutions include the World Bank and the European Bank for Reconstruction and Development.
Proceeds raised from the issuance of development bank bonds typically support projects that are consistent with the United Nations’ 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals. These range from the development of core infrastructure to the protection of the environment.
From an ETF perspective, the development bank bond space is one of the less exploited areas of the fixed income market with only UBS offering something comparable.
The new iShares fund is linked to the FTSE World Broad Investment-Grade USD Multilateral Development Bank Bond Capped Index. The fund tracks the index using a sampling-based physical replication process.
The index consists of US dollar-denominated fixed-rate bonds issued by multilateral development banks with shareholder lists that comprise all G7 member countries. Eligible bonds must be rated investment grade and have more than one year remaining to maturity and at least $500m outstanding.
Constituents are weighted by market capitalization subject to an issuer cap of 25%. Rebalancing occurs on a monthly basis.
The index currently has a yield to maturity of 1.7% and an effective duration of 3.2 years.
The ETF comes with an expense ratio of 0.15%, which is three basis points cheaper than the UBS ETF – Sustainable Development Bank Bonds UCITS ETF, currently the only other dedicated development bank bond ETF listed in Europe.
The UBS ETF, which has accumulated approximately $220m in assets since its launch in November 2018, is linked to the Solactive UBS Global Multilateral Development Bank Bond USD 25% Issuer Capped TR Index.