(Bloomberg) – VanEck is breaking new ground in the nearly 80 billion US dollar exchange-traded fund business with a product geared towards sustainable investing.
The asset manager unveiled an actively managed fund on Friday, the VanEck HIP Sustainable Muni ETF, which the company said will focus on investing in projects that promote sustainability or those with “positive social, environmental and economic outcomes”. It is traded under the ticker SMI.
The fund will meet the growing demand for investments – both in stocks and bonds – that are beneficial to society or the environment. At the same time, municipal ETFs have attracted a record amount of cash this year as investors look for tax-free securities to protect revenues from potentially higher levies under the Biden government.
The fund, managed by Jim Colby and Stephanie Wang, will complement VanEck’s existing muni ETF range with over $ 7 billion in assets under management. The company is working with the research company HIP Investor on the new product.
“Clients at all levels and across all channels have shown interest in ESG in general, but specifically in an option they can take advantage of in an ETF format in this asset class,” said Michael Cohick, Senior ETF Product Manager at VanEck, in an interview.
The fund enters an emerging corner of the fixed income ETF industry focused on investing with a positive environmental or social impact. The Janus Henderson Group announced on Thursday two sustainable fixed income ETFs that buy corporate bonds and other bonds. U.S. bond ETFs that follow certain ESG criteria have amassed around $ 4.7 billion, according to Bloomberg Intelligence.
Janus Henderson is entering the crowded ESG field with five active ETFs
VanEck uses four different screening methods from HIP, which assess securities for their environmental and social impact in order to determine whether debt securities are eligible for the fund. The filters take into account, for example, the resilience to climate threats and the proximity to opportunity zones, in which low-income and racially diverse populations typically live.
The fund, the first co-branded ETF from HIP Investor, uses a broad index of around 60,000 stocks. After using the four screens in early August, there were around 23,000 stocks left, Cohick said. He noted that the company is committed to building a “very sustainable” portfolio that maintains the return and duration characteristics of the benchmark.
Initial stocks include Minnesota state debt, which is likely to become a “climate crisis target,” given global warming, said R. Paul Herman, CEO of HIP Investor. Another is a California school district that uses solar energy, which helps cut energy bills and educates students on climate protection, he said.
The new ETF’s data-driven approach to bond selection will help clarify why stocks are in the fund, Herman said.
“It can bring new transparency and accountability to the muni market,” he said.
Cohick said he anticipates the fund will gain traction with a wide variety of investors. The muni ETF industry is dominated by passively managed products that follow an index, but more and more companies have launched actively managed funds that focus on government and local government debt. This week Pacific Investment Management Co. also launched an actively managed muni ETF.
In his investigation, VanEck found that its new ETF strategy outperformed the two largest passively-run Muni ETFs, Cohick said.
“We thought it made sense to take an active approach to this fund because it is so new,” he said.