The UBS ETF Sustainable Development Bank Bonds UCITS ETF (MDBU LN) has surpassed $1 billion in assets under management, driven by investors seeking high-grade USD bond exposure with a strong sustainability profile.
Clemens Reuter, Global Head of ETF & Index Fund Client Coverage at UBS Asset Management.
The fund, which debuted in November 2018, provides passive exposure to investment-grade debt issued by development banks – supranational institutions designed to finance projects with a positive social and economic impact in developing countries.
The fund achieves this exposure by tracking the Solactive UBS Global Multilateral Development Bank Bond USD 25% Issuer Capped TR Index, an index composed of bonds issued in US dollars by recognized multilateral development banks (banks whose shareholders’ list includes all G7 countries).
This includes bonds issued by the World Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, and the African Development Bank.
Eligible issues must have a fixed coupon, a minimum credit rating of AA-, at least $500 million outstanding, and a remaining maturity greater than twelve months. The index is weighted by market capitalization, subject to an individual issuer cap of 25%.
Bonds contained within the index are typically used to finance projects aligned with the United Nations’ 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals. Examples of these goals include alleviating poverty, improving infrastructure, protecting the environment, and delivering social benefits.
According to UBS, the ETF’s focus on impact-investing has attracted strong demand from sustainability-focused investors. This is borne out in the numbers with the fund recording positive net inflows in each of the previous twelve months, equating to more than $580 million in total net new assets over the past year, as of 23 April. This includes bumper net inflows of $140m in March 2021.
Performance-wise, the strategy is approximately flat (-0.2%) over the past year.
Clemens Reuter, Global Head of ETF & Index Fund Client Coverage at UBS Asset Management, said: “Our clients see development bank bonds as an attractive means of improving the sustainability profile of their portfolios while supporting high-impact development projects across the world. It is their commitment to sustainability that has helped this product reach the $1bn milestone.”
The fund has an effective duration of 3.8 years, a yield-to-maturity of 0.67%, and a yield spread over duration-matched US Treasuries of 0.08%. According to UBS, it can be deployed within portfolios as a sustainable replacement for US dollar high-grade bond exposure.
The fund is listed on London Stock Exchange, Xetra, SIX Swiss Exchange, and Borsa Italiana and is offered in an unhedged US dollar share class, which comes with an expense ratio of 0.18%, as well as sterling-hedged, euro-hedged, and Swiss franc-hedged share classes which cost 0.23%.