Overview

Tomorrow Never Dies: Bond. Renewable Bond.

EXECUTIVE SUMMARY

In this white paper, we attempt to study the historical performance and characteristics of a basket of sovereign bonds weighted according to their issuing country’s renewable energy generation capacity (hereinafter referred to as the “renewable capacity strategy”). In the renewable capacity strategy, we weight more heavily bonds issued by countries with a larger amount of renewable energy generation capacity relative to the Solactive Broad Global Developed Government Bond Index (hereinafter referred to as the “benchmark”). The renewable capacity strategy was, on average, more diversified than the benchmark, whilst exhibiting both higher total returns and lower volatility, between October 2008 and June 2019.

Through the historical performance of the renewable capacity strategy during the considered period, we observe the following:

  • Canadian and European bonds were overweighted by 11.59 and 6.37 percentage points respectively, relative to the benchmark, largely in lieu of US and, particularly, Japanese bonds (which had a 5.15 and 21.95 absolute percentage point historical underweight in the renewable capacity strategy).
  • The historical numerical credit rating of the renewable capacity strategy was, on average, above that of our benchmark by half a notch, whilst always remaining better rated.
  • The renewable capacity strategy exhibited, on average, a 0.5 lower modified duration than the benchmark during the historically-simulated period.
  • The Sharpe Ratio of the renewable capacity strategy was 0.84 vs. 0.54 of the benchmark during the considered period, driven by an almost 0.5 percentage point higher annualized return and an over 2 percentage point lower annualized volatility between October 2008 and June 2019.

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