Investment objective
To provide medium term capital growth with a diversified and actively managed portfolio of emerging market sustainable 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 investement 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 incorporates the results of the ESG Business Activities and Stakeholder analysis in the financial fundamental analysis. By evaluating ESG issues through a methodology developed in-house ( by a proprietary developed sustainable and responsible investment philosophy), the External investment Manager analyses and assesses the sustainability risks and opportunities that affect issuers.
All direct corporate bonds and sovereign bond portfolio holdings are covered by the extra-financial analysis. Based on OECD universe, at least 20 % of the initial universe is excluded on corporate side and at least 20% on the sovereign side.
For corporates issuers
The ESG universe consists of best positioned companies based on the scores resulting from the Business Activities and Stakeholder Analysis and which have also passed the Norms-based Analysis and the Armament & Controversial Activities reviews.
The ESG Analysis is based on the following pillars:
▪ Controversial Activities exclusions
▪ Norms-Based Analysis determines whether a company complis with the 10 principles of the UN GC for each of main categories ( Human rights), Labour, Environment and anti-Briberry
▪ Business Activities Analysis
▪ Stakeholders Analysis
▪ Stewardship
This in-depth analysis makes it possible to focus securities selection on the best companies from an ESG perspective, to eliminate issuers with the worst ESG profiles from the selection and/or to focus selection on issuers with the greatest exposure to sustainable development themes.The bottom 20% of issuers are removed from the universe.
For countries, public bonds issuers, such as public organisations
The analysis is carried out at the countries level. The binding elements are:
• The bottom 25% of countries are excluded from the eligible investment universe
• Normative filter, with a hard exclusion for countries that do not pass our Democracy and Freedom filter
• Discretion is applied to countries that are violators of international agreements, but such violations are not yet reflected in the available data.
The External Investment Manager’s proprietary process employs a broader, four-pillar, quantifiable definition: Human Capital, Natural Capital, Social Capital, and Economic Capital. This is coupled with an exclusion rule relating to high risk regimes and minimum standards of democracy.
The investible universe consists of those countries which perform best across four categories of sustainable development criteria: Human Capital, Natural Capital, Social Capital and Economic Capital.
This in-depth analysis makes it possible to focus securities selection on the best companies from an ESG perspective, to eliminate issuers with the worst ESG profiles from the selection and/or to focus selection on issuers with the greatest exposure to sustainable development themes.The bottom 20% (at least) of issuers are removed from the universe.
Supranational organisations issuing bonds
The ESG analysis procedure is based on 2-steps:
1) The purpose of the Mission Statement Analysis is to exclusively select supranational organisations whose mission makes a positive contribution to the economic and social development of regions and countries. Most of today's
supranational organisations meet this condition due to the very nature of their activities. In other words, the large majority successfully pass the screening process.
2) The External Investment Manager also performs a norms-based analysis of supranational issuers. With respect to companies, the purpose of this analysis is to determine whether or not the supranational organisation observes the 10 principles of the United Nations Global Compact and, more specifically, the 4 main categories: Human Rights (HR), Labour (L), Environment (ENV) and Anti-Corruption (COR), as defined above.
This analysis aims to eliminate supranational organisations that significantly and repeatedly fail to observe any of the 10 basic principles and which are note considered as highly oppressive regimes and/or are at risk from the perspective of terrorism financing and /or money laundering.
Methodological limitations can be assessed in terms of: nature of ESG information (quantification of qualitative data), ESG coverage (some data are not available for certain issuers) and homogeneity of ESG data (methodological differences).
As part of the Management Company’s Sustainable Investment Policy the sub-fund complies with the sets of exclusions applying to article 8 investment product.
The sub-fund invests predominantly in debt securities of issuers (with no rating constraints) located in, or having their registered office, or exercising a preponderant part of their economic activities in emerging countries.
In order to achieve the sub-fund’s objective, the sub-fund may also make use of a variety of (i) 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 (ii) strategies such as anticipation of rate movements, positioning on the yield curve, issuers selections, relative trading and currency.
The investment universe of the sub-fund comprises both local currency as well as hard currency debt.
The minimum asset allocation in such securities on a consolidated basis (direct and indirect investments through the use of derivative instruments) 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.
Allocation to equities will be the result of convertibles conversion to equities. The manager is not authorized to buy actively equity securities.
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.
The instruments described below are not covered by the ESG analysis.
The use of financial derivative instruments is restricted to:
-listed instruments in accordance with the investment policy (including but not limited to interest rate futures, bond futures, swap note futures, currency futures) for investment, hedging and efficient portfolio management purposes;
-OTC instruments for currency hedging purposes (including, but not limited to forward and foreign currency exchange contracts).
The use of OTC instruments for purpose other than currency hedging is prohibited (including, but not limited to OTC derivatives, CDS & CDO contracts).
The sub-fund may not invest in defaulted assets but may invest in Distressed Assets up to 10% of the sub-fund's net assets.
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.
