ESG Enhanced Global High Yield Bond Strategy

Investment Approach

Investment Objective: Maximise total return, consisting of interest income and capital appreciation, through access to the developed high yield bond markets while promoting, amongst others, certain environmental and social characteristics in compliance with Article 8 of the Sustainable Finance Disclosure Regulation (“SFDR”). The global high yield bonds in which the Sub-Fund will invest are typically rated lower than Baa by Moody’s or BBB by S&P or equivalently rated by Fitch.

Investor Profile: Institutional and wholesale investors seeking to participate in the capital market performance of an actively managed SFDR Article 8 compliant global high yield bond portfolio. The Sub-Fund is therefore suitable for investors who can afford to invest their capital over the long term.

ESG Exclusions: The Sub-Fund promotes environmental or social characteristics through the application of (1) the Socially Responsible Negative Exclusion Screen to minimise the Sub-Fund’s exposure to certain carbon intensive sectors and controversial industries; (2) an Enhanced Due Diligence Screen by which the Sub-Fund aims to avoid investing in borrowers or issuers underperforming on Environmental, Social and Governance issues whilst investing in those making progress on ESG issues; and (3) an exclusion of issuers with an Sub-Investment Manager ESG Rating of Single-B or less by reference to the composition of the ICE BofA Global High Yield Constrained Index (HW0C).

Sub-Investment Manager

Key Strengths

Rigorous Fundamentals-based Process:
A rigorous process incorporating top-down perspectives, bottom-up credit selection and integrated ESG characteristics. Strong credit selection and capital preservation are core features of the investment process.

Breadth, Depth and Tenure of Management:
The experienced portfolio management team, containing deep industry knowledge and supported by sophisticated systems, possesses the ability to deliver long-term performance.

Approach to Responsible Investing:
Minimise exposure to carbon-intensive and other controversial businesses and engage with management teams of underlying portfolio companies to leave a lasting positive impact on all stakeholders.

Investment Philosophy

The Sub-Investment Manager believes outperformance is driven by insightful credit selection and vigilant risk management. The investment philosophy focuses on capital preservation, predicated on bottom-up fundamental research and a goal of minimising default risk by identifying and avoiding marginal quality credit.

1. Proprietary Analysis: Strong credit selection is the core tenet of the investment philosophy. Investments are made with a goal of realising a differentiated set of industry and credit perspectives.
2. Value Orientation: A value-based investment philosophy is employed to accurately price risk and assess relative value in the marketplace. Rigorous, in-depth research and leveraging of a broad network of relationships feeds a proprietary knowledge base of factors to best understand qualitative and quantitative attributes including business sustainability, access to capital, and free cash flow generation.
3. Focus on Capital Preservation: A sharp focus on downside risk is critical in asymmetric asset classes. The Sub-Investment Manager seeks to minimise defaults to preserve investors’ capital and generate attractive long-term performance.
4. Disciplined Risk Management: Optimisation of portfolios through rigorous buy and sell discipline and integration of data analytics in all aspects of the process. Credit performance is actively monitored over the life of each holding to help ensure that the investment thesis remains intact.

ESG Approach

The Sub-Investment Manager will employ a rigorous ESG framework to identify businesses that the Sub-Investment Manager believes are positioned for long term value creation through sustainable business practices, including:

Risk Management: Utilising ESG characteristics to enhance the ability to identify and evaluate potential risks pre- and post- investment.

Impact: Engaging in ESG related conversations with portfolio companies to encourage positive change in their business practices.

Engagement: Utilising an internally developed framework designed to target engagement with portfolio companies on ESG matters that could pose risks to the companies or to their industries.

Minimising Exposure to Carbon-Intensive Sectors and Investing in a Socially Responsible Manner by aiming to avoid investments with the following characteristics:

  – Energy: Majority of revenue driven by Oil & Gas exploration & production.

  – Utilities: Majority fossil-fuel based and/or thermal coal power generation.

  – Thermal Coal: Majority of revenue from extraction or production.

  – Certain controversial industries: i.e. Weapons, opioid manufacturers and  private prisons.

  – Human Rights and Labour Rights: Violated the UN Guiding Principles and OECD Guidelines.

  – Governance: Violations of anti-corruption and anti-bribery laws.