Key Morningstar Metrics for iShares € Corp Bond 0-3yr ESG SRI UCITS ETF SUSS
- : BronzeMorningstar Medalist Rating
- : AverageProcess Pillar
- : Above AveragePeople Pillar
- : Above AverageParent Pillar
Maturity-segmented corporate bond funds can be used as complements to core holdings with the objective of modulating the duration of the credit bucket of a portfolio. From that perspective, the accuracy of the duration metrics of, in this case, short-dated bond passive funds makes them ideal options to achieve this goal with precision and with the knowledge that the portfolio manager is going to keep turnover and transaction costs at a bare minimum.
However, despite the benefits of low fees, this is a market exposure where experienced active managers may add value, for example, via targeted sector and company calls. Investors must also consider that the index provides sole exposure to corporate bonds, whereas the typical active fund in this category ventures into agency and covered bonds to limit risk, or alternatively to high yield to prop up returns at more favorable times.
IShares € Corp Bond 0-3Yr ESG SRI ETF tracks an index that mixes exclusions with a best-in-class selection approach to provide exposure to companies with a positive environmental, social, and governance profile. All the while, the portfolio shows broad diversification across sectors and issuers.
The ESG screening usually results in a quality tilt relative to the parent universe as measured in terms of credit rating distribution. There are also some differences in sector distribution, with ESG propositions for this bond market typically showing higher exposure to financials and lower exposure to industrials and utilities. However, over the long term, there seems to be little differentiation in the risk/return profile relative to the non-ESG-screened universe.
The fund’s low cost relative to active peers provides a constant tailwind to returns, but ultimately this is a bond market where active managers have avenues to add value.
iShares € Corp Bond 0-3yr ESG SRI UCITS ETF: Performance Highlights
Passive funds that track broad-based ESG indexes tend to mirror the risk/return profile of their non-ESG parent peers over the long term. This is particularly so in the case of the market of corporate bonds denominated in euros. This is because, compared with other geographical areas, there is a higher compliance with ESG standards.
Having said that, the effect of ESG screening in terms of sector distribution at the portfolio level can result in deviations in performance relative to the non-ESG-screened peers over short periods. For example, the underweight in energy of ESG strategies has weighed on returns in the past few years.
The compounding benefits of low fees always provide a nice tailwind to returns. Also, investors in this strategy can be confident that portfolio turnover and thus trading costs are tightly controlled because bonds are kept until maturity. But ultimately, this is a market where active managers can add value. This fund´s returns have typically hovered around or just below the category average on a risk-adjusted basis.
