Green bonds can provide fixed income investors with more than sustainability exposure and potential financial returns. Our analysis shows how a standalone green bond allocation can also enhance portfolio diversification and resilience.
Key Takeaways
1 Green Bonds’ Potential Benefits
Allocating to green bonds can allow investors to diversify their fixed income portfolios and increase their sustainability exposure without impacting their portfolios’ risk-return profile.
2 Portfolio Diversification Levels
In our analysis we found that investing 20% of a global fixed income portfolio in a standalone green bond allocation delivered measurable diversification benefits across both sector and currency without causing excessive tracking error. In a corporate bond portfolio, the level was 45%.
3 Preparing for Uncertainty
The 2020s have taught investors to expect the unexpected. Ongoing fiscal risks, policy shifts and geopolitical uncertainty underscore the importance of a diversified investment strategy.
Capital is at risk.
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