UBS Asset Management has expanded its range of sustainability ETFs with the launch of the UBS Sustainable Development Bank Bonds UCITS ETF.
Andrew Walsh, Head of Passive & ETF Specialist Sales UK, UBS.
The fund, which has been listed on the SIX Swiss Exchange, London Stock Exchange and Xetra, provides passive exposure to higher quality investment grade debt issued by development banks such as the World Bank and European Bank for Reconstruction and Development.
Development banks are supranational institutions designed to finance projects with a positive social and economic impact in developing countries.
The type of projects they finance can vary greatly; however, their objectives are typically in keeping with the United Nations’ 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals.
The development of core infrastructure and the protection of the environment – typified by projects such as the construction of a water treatment plant – are some of the key themes development banks look for when providing capital.
Commenting on the launch, Andrew Walsh, Head of Passive & ETF Specialist Sales UK, UBS, said, “By investing in these bonds, one can provide relatively direct support to a series of projects that generate positive effects for society in general. Investors also benefit from high liquidity of the securities and excellent creditworthiness of the supranational issuers.”
The reference index
The fund delivers the desired exposure by tracking the Solactive UBS Global Multilateral Development Bank Bond USD 25% Issuer Capped TR Index via a physical stratified sampling methodology.
The index, developed in partnership with Solactive, comprises bonds issued in US dollars by recognised multilateral development banks (banks whose shareholders’ list includes all G7 countries) with a minimum rating of AA- (S&P) or Aa3 (Moody’s). To be eligible for inclusion, a security must have a minimum issue amount of $500 million, a remaining maturity of at least twelve months, a fixed coupon and conventional bullet or callable maturity type.
The index is weighted by market capitalisation, subject to an individual issuer cap of 25%, and currently offers a yield-to-maturity of 2.77% with an average duration of 3.20 years (as of June 2018).
“These figures demonstrate the attractiveness to invest in the bonds of development banks,” said Clemens Reuter, Global Head of Passive at UBS. “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.”
Growth in SRI
The growth in socially responsible investing has been one of the stand-out trends in finance over recent years. UBS notes, for example, that in just three years, from 2014 to 2017, assets managed according SRI principles in Germany, Austria and Switzerland increased from €875 billion to €2.7 trillion.
The fund is available in distributing share class in USD on SIX, GBP on LSE, and EUR on Xetra, and in accumulating share class in USD on SIX and EUR on Xetra.
It comes with a total expense ratio of 0.18%.