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Why Some FAs Want More ESG Bonds for Conservative Investors

January 11, 2019

Millennial clients and financial advisors of the same generation may have embraced investing with a cause, but more conservative investors need social impact options in fixed income investments, according to a recent survey.

At least that’s what some advisors believe.

Fifty-eight percent of financial advisors with three to nine years of experience say there’s a need for more fixed income options in environmental, social and governance products, FA magazine writes, citing a survey from Incapital, a Boca Raton, Fla.-based underwriter and distributor of fixed income products.

However, among advisors with 10 years of experience or more, only 34% believe there’s a need for more ESG bonds, according to the survey that polled 200 advisors, the publication writes.

It’s not surprising that younger clients and their advisors are aligned on “results-driven causes,” says Louise Herrle, managing director and head of Incapital’s platform for distributing ESG investments, according to FA magazine. However, ESG equity funds are sometimes too risky for more conservative investors, according to Herrle.

ESG fixed income, meanwhile, while carrying credit risk, does offer income predictability and the return of the principal at maturity, and therefore can be incorporated into more conservative portfolios, she says, according to FA magazine.

But the overall benefits of fixed income in diversifying a portfolio may not be all that clear to advisors’ clients, the survey found, according to the publication.

More than 70% of advisors polled say it would take a “significant correction” in equity markets to draw investors to bonds, according to Incapital, FA magazine writes.

By Alex Padalka
  • To read the FA Magazine article cited in this story, click here.