Franklin Templeton is set to launch an actively-managed euro green bond ETF that will provide exposure to bonds supporting projects aligned to a low-carbon future.
The Franklin Liberty Euro Green Bond UCITS ETF (FLRG) will list on the Deutsche Börse on 30 April and the London Stock Exchange and the Borsa Italiana on 2 May with a total expense ratio (TER) of 0.30%.
FLRG will be managed by the firm’s head of European fixed income David Zahn (pictured) and Rod MacPhee, portfolio manager in the Franklin Templeton Fixed Income Group and will seek to outperform the Bloomberg Barclays MSCI Euro Green Bond index.
The ETF will invest at the least 70% of its assets in green-labelled bonds with the rest made-up of unlabelled bonds that are climate-aligned. These bonds are not labelled as green but solutions contributing to a low-carbon future.
Green bonds were first issued in Europe in 2007 with global green bond market issuance totalling €165bn, as at Q1, according to Bloomberg.
Caroline Baron, head of ETF sales EMEA, at Franklin Templeton, commented: “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.
“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.”
Zahn said: “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.
“As for unlabelled green bonds, we think this universe offers compelling opportunities that are less well-known than their labelled green counterparts because there is comparatively less demand.”
The firm said this is the first actively-managed euro green bond ETF to list in Europe.