Stockholm (NordSIP) – Franklin Templeton has announced the launch of Europe’s first actively-managed Euro Green bond ETF. The new fund, Franklin Liberty Euro Green Bond UCITS ETF2, will be managed by David Zahn, Head of European Fixed Income, and Rod MacPhee, Portfolio Manager.
The new fund aims to provide exposure to the European green bond market while maximising total returns and will be listed on Deutsche Börse the LSE, Borsa Italiana and the SIX Swiss Exchange. The bond is the latest addition to the Irish-domiciled Franklin LibertySharesTM UCITS ETF range of smart beta and active ETFs within.
“Demand is rising in Europe for high conviction ESG products due to increasing investor and regulatory pressure to incorporate green, ethical and governance factors into investment portfolios,” said Caroline Baron, Head of ETF Sales EMEA. “While traditional passive ETFs continue to grow in popularity, we believe that with securities such as green bonds, an actively-managed ETF vehicle that offers full transparency, flexibility and tradability can add value and insight to investors. With this new addition, we are excited that the Franklin Liberty Euro Green Bond UCITS ETF, which is priced at 30 basis points, will further complement our existing active management ETF range”.
At least 70% of the assets of this new funds will be invested in green bonds, with the balance made up of unlabelled bonds which are climate-aligned, to nonetheless provide financing solutions that contribute to a low-carbon future. “By investing in this manner, this new active ETF expects to provide liquidity to new and existing climate-aligned projects with environmental benefits,” explains the press release.
“In periods of risk aversion, green bonds exhibit lower volatility as investors tend to hold on to these bonds,” explains Zahn. “Our data indicates that in both the primary markets and secondary markets, 72% of green bonds had tighter spreads than ordinary bonds after seven days, and 62% were tighter after 28 days respectively. We believe that active management gives us the best opportunity to benefit from these pricing opportunities.
Investments will be informed by a fundamental, bottom-up credit analysis on corporate bonds, while as well as Franklin Templeton’s proprietary ESG model on sovereigns. Performance of the new fund is benchmarked against the Bloomberg Barclays MSCI Euro Green Bond Index.
As for the up to 30% of unlabelled green bonds that the fund might hold, Zahn says that “we think this universe offers compelling opportunities that are less well-known than their labelled green counterparts because there is comparatively less demand. As an investment team, we think it is important to use our position to push for accountability and hence we will require all issuers in our portfolio comply with a baseline level of environmental impact reporting regardless whether the issue is labelled green or held in the portfolio.”
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