Supplement your fixed income portfolio with this ESG ETF

Environmental, social and governance (ESG) investments are growing in the bond market, allowing for greater diversification that can complement a portfolio of fixed income securities.

At the same time, the low interest rate environment is pushing fixed rate investors to seek other sources of return, including high risk debt. Now investors can earn a high return while focusing on the niche ESG theme of climate change in one fund: the FlexShares ESG & Climate High Yield Corporate Core Index Fund (FEHY).

“When ESG was still just a niche, the strategies that used it were mostly offered as stand-alone products,” FlexShares explained on its products website. “But innovative asset managers have started to see the value of adding an ESG lens to traditional investment portfolios. “

“For example, FlexShares saw how ESG considerations can support strategies designed to respond to specific investor outcomes, such as income generation,” added FlexShares. “We also believe it’s important for dividend strategies to identify companies that offer investors the best opportunity to maintain their payments. Assessing the financial health of that business is the traditional starting point. Using ESG data, we can also look at non-financial risks that can affect a company’s ability to pay dividends.

Additionally, FEHY’s ​​core includes an ESG vector score. FEHY search for investment results that match
generally at price and yield of the Northern Trust ESG & Climate High Performance of the core index of US companies.

“The ESG Vector Score is designed to focus on the ESG-related business issues most likely to impact a company’s financial performance and, ultimately, a company’s return on investment. portfolio, ”said a FlexShares Fund Focus. “Our rating methodology uses a framework established by the Sustainable Accounting Standards Board (SASB), which identifies 26 categories of general sustainability issues that affect business performance. Then the SASB determined which of these issues are most relevant to a particular sector or industry. “

Green bond financing on the rise

The introduction of FEHY is timely. While ESG-focused stocks have garnered the most attention in terms of products, more and more fixed income options are becoming available, as evidenced by the rise in “green bonds”.

“And while ESG funds have been the title winners, both from a yield and social perspective, in recent years the interest in green bond funding in the US $ 46 trillion bond market dollars has increased, “said an article from the financial adviser.

“The fixed income market is approximately $ 120 trillion globally and green bonds are the fastest growing area in the fixed income markets,” the article adds. “Today’s green bond market, however, is just the beginning. If you think of it like a baseball game, we’re only in the second inning and the green bond market, as well as ESG as a whole, still has a long way to go.

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