Returns in the green bond market and the traditional bond market cross paths at some points. For instance, if oil prices go up, bonds for solar projects will be more appealing, but if oil prices are sinking, solar projects are less attractive.
Shelton holds some tiered bonds with one-to-10-year durations, but he holds most in the intermediate, three-to-four-year maturity range, he said.
The global issuance of green bonds has reached $173 billion, according to Bloomberg New Energy Finance. The United Nations’ Climate Bonds Initiative estimates that totals for 2018 will be $250 billion to $300 billion by the end of the year.
“That’s explosive growth, and advisors need to understand the nuances of the emerging fixed-income sector as new issuers come to market with a variety of new products,” said Mock.
“While green bonds are growing rapidly, the need to customize holdings can make or break a portfolio,” he added. “That’s because at this early time in the evolution of green bonds, indexing fails to capture the nuances of the green bond market.”