Lyxor’s pan-European-listed green bond ETF, the Lyxor Green Bond (DR) UCITS ETF, has cruised to more than €500 million in assets under management thanks to approximately €330m of new money allocated to the fund so far this year.
The fund appears to be on track to chalk up a clean sweep of monthly inflows in 2020 – twelve months of back-to-back positive flows.
At its launch in 2017, the fund was the world’s first ETF to offer dedicated exposure to green bonds.
In the ensuing years, it has seen its assets swell in synchronization with the growth of the underlying green bond market, which has accelerated this year.
The fund debuted on Euronext Paris (CLIM FP) but has since been cross-listed to multiple exchanges around Europe including the London Stock Exchange (CLIM LN / CLMU LN), Xetra (KLMT GY), and Borsa Italiana (CLIM IM), among others.
It is linked to the Solactive Green Bond EUR USD IG Index, an index co-developed by Lyxor in partnership with Solactive and the Climate Bonds Initiative.
The index universe comprises all USD and EUR-denominated investment-grade bonds that have been defined as green bonds by the Climate Bond Initiative. Floating-rate notes, inflation-linked bonds, convertible bonds, and municipal bonds are excluded from selection.
To be included in the index, bonds must have at least €300m or $300m outstanding for bonds denominated in euros or US dollars, respectively, with remaining time to maturity of at least 12 months. Index components are weighted by market value outstanding with corporate issuers and government issuers capped at 5% and 10% respectively.
Green bonds are essentially bonds that are issued primarily to finance projects aimed at combating climate change, with typical investments focused on the clean energy, green buildings, and clean transportation industries. Recent issues include Société du Grand Paris, Iberdrola, the Dutch State, E.ON, Verizon, Hong-Kong MTR.
According to the Climate Bonds Initiative, the market for green bonds reached a new record in Q3 2020, with issuance peaking at $73bn, the highest volume in any third quarter period since market inception in 2007 and the second-highest amount on record in any single quarter. Cumulative issuance volume since inception reached $954bn and is expected to breach the $1 trillion milestone in Q4.
The market is benefitting from the convergence of several market drivers: rising investor demand for green assets, an increasing number of companies looking to transform their operational and product model to reduce carbon emissions and achieve carbon neutrality by 2050, as well as a new regulatory framework and a host of stimulus measures designed to stem the Covid-19-induced global recession such as the EU’s Next Generation Recovery Plan – all of which make for an environment conducive to increased green bond issuance.
Reflecting the increasing expansion of this market, the number of green bonds tracked by the index has quadrupled to 440, making it an increasingly diversified fund.
François Millet, Head of ETF Strategy, ESG and Innovation at Lyxor Asset Management, commented: “We are proud that our pioneering Green Bond ETF has reached this important milestone and we are convinced of the power of indices and ETFs to reallocate capital at scale towards a carbon-neutral economy. This conviction also led us to launch this year the first ecosystem of climate ETFs tracking the EU’s Climate-Transition and Paris-Aligned benchmarks, designed to meet the Paris Agreement goals”.
Manuel Adamini, Senior Advisor at Climate Bonds Initiative, added: “We congratulate our long-time Climate Bonds partner Lyxor Asset Management for this important achievement. This is exactly what we need on a global scale, reorienting capital towards climate-relevant projects and assets to achieve Paris Agreement objectives. Passive products pick up a powerful trend in investment management, the ongoing demand for green opportunities, channeling capital away from a fossil-fuel-based past into a low carbon and sustainable future, and – most importantly – doing so at minimum cost and friction for investors. The growth that Lyxor is experiencing is a reflection of this momentum gathering in the market.”
The fund has a total expense ratio of 0.25%.
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