Solactive has launched today the Solactive UBS Development Bank Bond Index Family, a new suite of financial benchmarks targeting the World Bank and other high-grade development bank debt. The new series is the result of a partnership between Solactive and UBS and follows the launch of an increasing number of environmental, social and governance (ESG) strategies by the German index provider.

This time however the Solactive Development Bank Bonds Index Family focuses on a field of sustainable investment that has not been widely explored before: that of development banks.

"We already have around US$2bn invested in what we think are the first sustainable multi-asset discretionary portfolios for our clients and in the asset allocation process we realised there was an opportunity to set up some benchmarks around some of those assets, specifically World Bank and other development bank bonds," said Mark Haefele, chief investment officer at UBS Global Wealth Management, adding that this will help to broaden and deepen the market for products providers and investors. "We think this will open up new opportunities for different product providers, and provide new sustainable reference assets to deploy investments."

The index family can be a way for investors to contribute to projects with positive social and environmental impact by providing financing to the world's most known development banks, while at the same time receiving decent risk-adjusted returns, according to Timo Pfeiffer, head of research at Solactive.

Development banks are supranational institutions that gather funds for development pro-jects with positive social and environmental impact. Purposes of these projects can vary greatly, however, the majority of them are covered in the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals. Thanks to the indices, investors will be able to support an economic development agenda by investing in large baskets of fixed income instruments issued by high-grade financial institutions. In addition, the family can be used as a transparent benchmark for active managers interested in the performance of the development bank sector.

"The main considerations include the definition of development bank and multilateral development bank," said Pfeiffer. "Also, filters were implemented to ensure" liquidity, transparency, repeatability, relevance of the index, as well as convenience for our clients in relation to cash management."

"There is increasing demand for sustainable and impact investing, part of which is becoming more niche and specialised," said Pfeiffer. "As such, multilateral development banks (MDB) can be definitely considered part of the sustainable investment trend. Concerning asset allocation, MDB as a standalone class of strong supranationals can be useful in the optimization of asset allocation. From a risk-return perspective, it could provide investors with an alternative to high-rated sovereigns bonds."

According to Pfeiffer, MDBs are part of the Solactive ESG range of indices but "are clearly different from index-linked green bonds due to their different underlying approach and focus".

The launch comes almost two years after the Swiss bank licensed the Dow Jones Sustainability Europe Diversified High Beta High Dividend Index as the underlying of index-linked products. Solactive notably active in the sustainable investment market and has developed a number of indices such as the Solactive Global Ethical Low Volatility AR EUR Index which was licensed to Commerzbank, as well as the Solactive Sustainable Development Goals World Index and the Solactive Ethical Europe Equity Index which were licensed to BNP Paribas for the development of the French bank's green bond series.

The index family is currently composed of 36 total return indices engineered to mirror the performance of US dollar-denominated bonds issued by entitled development banks. The indices can be subdivided into three groups: indices covering bonds issued by development banks, bonds issued by multilateral development banks, and bonds issued by the World Bank. For each of these three groups, shorter maturities versions of the indices are available. The indices are denominated in four different currencies (Swiss francs, euros, as well as dollars). Composition is market-cap-weighted and readjusted monthly. The family will be expanded to also include price return and hedged versions of the indices.

Click in the link to read the guidelines and composition of the Solactive UBS Development Bank Bond Index Family.

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