Instead of lending to just the government or some faceless corporation, what if your bond mutual fund also helped to vaccinate kids around the world? Or helped finance a clean-water project or solar-energy farm?
More mutual fund managers are seeking out bonds that not only do well but also promote a positive impact on the environment, society and corporate governance. It’s a concept called socially responsible investing, and it’s long been dominated by stock mutual funds. But a proliferation of “green bonds,” whose proceeds go toward projects with environmental benefits, and similar investments mean more bond funds are using a socially responsible lens.
Fund managers — and their investors — aren’t selfless, of course. They won’t buy a bond unless they believe its potential return will more than make up for its risk, no matter how noble its purpose. That’s because managers want investors to use their funds as the core of a bond portfolio, and they know that won’t happen unless they deliver equivalent or better returns versus competitors.
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