Now This: ESG And Junk Bonds Meet In One ETF

Investors clamoring for more virtue in the world of fixed income exchange traded funds got another option last week, this time with a high-yield kicker, when the Nuveen ESG High Yield Corporate Bond ETF NUHY debuted.

What Happened

NUHY is the fourth ETF in Nuveen's fixed income lineup and the third that adheres to environmental, social and governance (ESG) investing principles. Nuveen's newest ETF follows the Bloomberg Barclays MSCI U.S. High Yield Very Liquid ESG Select Index.

That index “utilizes certain environmental, social, and governance (“ESG”) criteria to select from the securities included in the Bloomberg Barclays U.S. High Yield Very Liquid Index, which is designed to broadly capture the U.S. dollar-denominated, high yield, fixed-rate corporate bond market,” according to Nuveen.

In addition to the three bond ETFs, Nuveen offers eight equity-based ESG ETFs.

Why It's Important

One of NUHY's directives is to have a low carbon footprint. While that's typical of many ESG strategies, both fixed income and equity-based, it's unique to the high-yield universe where fossil fuels producers account for a significant percentage of the space. The Markit iBoxx USD Liquid High Yield Index, a widely index of junk bonds, allocates 12.22% of its weight to energy issues.

Issues in the new NUHY are cap-weighted with the issuer splitting the debt into groups based on ESG scores and credit quality. NUHY's parent index is home to over 800 bonds, but the fund's underlying benchmark holds about as half as many.

“The Nuveen ESG High Yield Corporate Bond ETF seeks the dual objectives of offering investors competitive income while remaining consistent with environmental, social, and governance values,” said Jordan Farris, managing director and head of ETFs at Nuveen.

What's Next

NUHY charges 0.35% per year, or $35 on a $10,000 investment. There are cheaper junk bond ETFs on the market, but USHY's fee is decent among ESG fixed income funds.

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