Investment objective
To provide medium term capital appreciation with a diversified and actively managed portfolio of euro sustainable corporate bonds, without any specific restriction on tracking error. The sub-fund will use a selection of securities complying with Environmental, Social and Governance (ESG) responsibility criteria. The portfolio will be composed of issuers that are either leading in ESG best-practice or attractive due to their progression in ESG.
Investment policy
The sub-fund promotes environmental and social characteristics and qualifies as an investment product in accordance with article 8(1) of Regulation (EU) 2019/2088 on sustainability related disclosures in the financial services sector.
To select eligible securities, the manager performs both a financial and non-financial analysis, using ESG (Environmental, Social, Gouvernance) criterias.
The sub-fund is actively managed through a top-down and bottom-up approach while taking into account environmental, social and governance factors (ESG). The outcome portfolio combines three principal performance drivers: credit rating, sector allocation and security selection in the corporate market. However, duration, yield curve and currency provide additional sources of return for the strategy.
The ESG score of the portfolio should be at all time greater than the ESG score of the index. In that respect, the eligible universe is determined by the combination of exclusion filters and selectivity approach (best in class) set out below.
The approach starts by defining an ESG optimised investment universe, whereby issuers and sectors are excluded which are deemed unsustainable. Companies with the poorest ESG profiles within their sector are also excluded and at this stage with the bottom 40% of issuers in the global universe, defined by their ESG score, being removed. Within this ESG optimised universe, the External Investment Manager then conducts its standard active portfolio management process of choosing bonds with the best risk and reward profile. The manager has a preference for bonds with better sustainability profiles but does not have a specific target in that regard. Outside of the core ESG optimised universe described above, the External Investment Manager also has discretion to own names with improving ESG momentum profiles. ESG analysis is an integrated part of the standard active portfolio management process and applies to all physical bonds held in the portfolio. Thematic factors are incorporated through exclusions, however, specific thematic or sustainable targets are.
Within the optimised universe the External Investment Manager selects securities based on financial criteria, as well as ESG criteria. Each issuer is evaluated through fundamental credit analysis and receives the portfolio manager own proprietary risk centric ESG ratings. Issuers with an ESG rating of 3.6 or worse fall within the 40th percentile threshold (ratings are from 1 to 5, 1 being the best and 5 being the worst score). Any issuers with ratings worse than 3.6 will need to have a positive ESG momentum score, indicating the company is on an improving ESG trajectory to be considered for investment. The momentum signal considers the most recent five years of headline ESG scores, and determines an average year-on-year change, weighted towards the most recent data. Based on this data, a momentum score from -2 to 2 is assigned.
These data are provided by several datasets: MSCI, Sustainalytics, VigeoEiris, and CDP climate change and water metrics.
The ESG process is based on the following criterias:
- ESG ratings (based on Insight proprietary ESG ratings): The manager targets investments issued by issuers ranked above the 40th percentile by ESG score, as determined by the manager, unless, in the manager’s reasonable opinion, the issuer has an improving ESG trajectory.
- Norms-based (UN Global compact violators are excluded, which is automatically captured in the exclusion of the worst in class ESG rated names)
- Screening process: security selection process must incorporate a disciplined and well defined sustainability screening. The sustainability screening process should address the major topics that fall under the Environmental, Social and Governance (“ESG”) themes (UN Principles Responsible Investment) and UN Global Compact Principles.
100% of the bonds in the portfolio receives extra-financial analysis. The only holdings not directly subject to extra-financial analysis are those in cash and cash funds.
The sub-fund invests predominantly in euro denominated investment grade corporate bonds and other fixed and floating rate securities with no rating constraints. The sub-fund may also make use of a variety of instruments including, but not limited to, forward rate notes, forward foreign exchange contracts (including non-deliverable forwards), interest rate futures, bond futures and OTC swaps such as interest rate swaps and credit default swaps and strategies (e.g. yield curve and
arbitrage strategies by way of investments in the securities and derivative instruments listed above) in order to achieve the sub-fund’s objective.
The minimum asset allocation in such securities on a consolidated basis (direct and indirect investments) will be of 60% of the sub-fund's net assets.
The sub-fund will respect within the remaining 40% of its total net assets and on a consolidated basis all the following limitations for investments in the below securities/instruments:
(i) a maximum of 25% of the total net assets of the sub-fund may be invested in convertible bonds and other equity-linked debt securities;
(ii) a maximum of one third of the total net assets of the sub-fund may be invested in money market instruments, including, but not limited to, cash and cash equivalents including certificates of deposit and short-term deposits;
(iii) a maximum of 10% of the total net assets of the sub-fund may be invested in transferable equity securities;
(iv) a maximum 10% of its net assets in funds that have been selected in accordance with a number of qualitative and quantitative criteria. The qualitative analysis assesses the stability and strength of the investment manager, as well as its investment process and philosophy. The quantitative selection process aims to select only funds with proven risk-adjusted performance.
The sub-fund may seek to minimize the exposure to currency fluctuations by hedging currency risk through financial derivative instruments as described in Appendix 2 of the full prospectus.
These are predominantly used for hedging purposes and Investment in derivates is not the main aim of the Sub-Fund, and thus does not seek to obtain any sustainable objective and any ESG analysis.
This sub-fund is actively managed and is compared to the risk benchmark as described in Appendix 2 for performance and risk level indicator purposes. However, the reference to this index does not constitute any objective or limitation in the management and composition of the portfolio and the sub-fund does not restrain its universe to the index components.
The index does not evaluate or include its constituents on the basis of environmental and/or social characteristics and is therefore not aligned with the ESG characteristics promoted by the sub-fund.
Therefore, returns may deviate materially from the performance of the reference index.
