State Street Global Advisors has launched an actively managed municipal bond environmental, social and governance-focused exchange-traded fund, sub-advised by Nuveen, as the firms said clients were seeking more ESG investment opportunities.
The ESG fund, called the SPDR Nuveen Municipal Bond ESG ETF, invests in municipal securities that deliver ESG outcomes, or whose proceeds are used to fund positive environmental or social projects.
Matthew Bartolini, managing director at State Street Global Advisors, said the Boston-based investment firm kept hearing from its clients there was a lack of options in building ESG portfolios on the fixed-income side. State Street teamed up with Nuveen to create the ETF to provide more ESG options to clients.
“We've been continuously trying to build out the type of asset allocation tools that can allow advisors to build out holistic model portfolios that map over their traditional asset allocations but with an ESG overlay,” he said.
ESG continues to grow in the muni space with an evolving investor class that is demanding ESG paper in their portfolios,
The new fund also comes as
In the new SPDR fund, Nuveen portfolio managers will leverage the company’s proprietary ESG Municipal Bond Scoring Tool, which first came to market in 2018. The scoring tool allows Nuveen to identify bonds from issuers who are leaders in “environmental stewardship, solid governance, and positive social consequences” and build out a more robust strategy in terms of diversification and exposure to broader sectors, according to David Blair, a portfolio manager for Nuveen’s municipal fixed income team.
The strategy will predominantly consist of investment-grade, tax-exempt municipal securities with maturities ranging from two to 17 years. Nuveen employs a value-oriented technique to find possible municipal bond investments, which is meant to uncover higher-yielding and undervalued municipal bonds with above-average total return potential.
Shawn O'Leary, a portfolio manager for Nuveen’s municipal fixed income team, said Nuveen was seeing customization requests for things that were ESG in nature from clients, leading it to realize that it needed to provide this capability and build it from the ground up internally.
“Our approach to ESG analysis is to weigh quantitative measures of outcome, the quality of the service delivered, the impact that it delivers in its community and assess that in the context of the cost, affordability and access that service provided,” he said.
O’Leary said at least 80% of the fund has to be “ESG leaders,” or issuers that have shown leadership in terms of environmental and social stewardship within their communities relative to their peers and that sector.
Additionally, the balance of the fund can be up to 20% of “thematic investments,” specific projects that may be issued by a particular entity that doesn't have a very high ESG score, but that individual project has the potential to improve their ESG performance over time, such as a high carbon public power authority installing its first wind farm or a multi-state healthcare credit that is doing critical access clinic in an underserved community.
“The fund answers a need out in the marketplace for asset allocators to build out an overall portfolio that covers asset classes but with that ESG emphasis,” O'Leary said. “That has been a driving trend within the ETF landscape within wealth management, to be able to offer model portfolios and an overall asset allocation portfolio.”
State Street and Nuveen debut their ETF after
“The prospect of higher taxes coupled with rising uncertainty surrounding future interest rate hikes have increased demand for actively managed municipal bond ETFs,” said Brie Williams, head of practice management at State Street Global Advisors, in a statement. “At the same time demand for municipal bond exposure is growing, investors are increasingly looking beyond equities for ESG exposure.”
State Street and Nuveen have four other ETFs with a combined $11.1 billion assets under management.
