Oith sustainable development a priority objective for many asset allocators and investors, more and more fund issuers are looking for ways to meet this growing demand.
The vast fixed income market is fertile ground for innovation in green funds. Some of this innovation is already happening. Take the case of the VanEck HIP Sustainable Muni ETF (SMI)which debuted last September as the first listed index fund dedicated to green municipal bonds.
The actively managed SMI is managed by HIP Investments – a pioneer in the field of green municipal bonds. HIP Investments’ pedigree is relevant to investors because for many income investors, munis are a staple asset class, but most are unfamiliar with green bonds yet.
“HIP Investor Ratings are data-based, evidence-based and research-linked. Specifically, HIP assessments incorporate research that shows which variables are critical to improving outcomes. Then HIP tracks data and metrics related to evidence-based targets and goals,” said HIP Investors Founder and CEO Paul Herman in a recent note.
SMI, who plays sports a 30-day SEC yield of 1.27%, holds only 44 municipal bonds. This is the result of a high entry bar created by HIP Investor’s stringent investment criteria and the novelty of green municipal bonds. None of the ETF’s holdings exceeds a weighting of 4.77%.
“HIP Investor’s methodology, which predates the term ‘ESG’ by several years, uses five pillars based on Maslow’s Hierarchy of Needs. These five pillars – Health, Wealth, Land, Equality and Trust – can also be mapped to ESG,” adds Herman.
Additionally, the HIP methodology presents a two-pronged approach that emphasizes sustainability and education. Accordingly, some of the fund’s holdings are issued by transportation authorities and other typical municipal issuers, while others are issued by educational entities, including colleges and school districts.
“In SMI, HIP ratings also follow the United Nations Sustainable Development Goals (SDGs) framework,2 as well as a climate threat resilience score,” Herman notes. “To value areas in need of access to education, HIP tracks the number of Opportunity Areas served by the school district’s geography.”
California and New York municipal bonds represent 60.6% of the ETF’s weighting. SMI has an effective duration of 5.77 years and 84% of its holdings are rated investment grade.
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