M&G Investments (‘M&G’) today announces the launch of the M&G (Lux) Emerging Markets Corporate ESG Bond Fund (“the Fund”), a Luxembourg-domiciled SICAV investing in the emerging market corporates bonds, with a focus on Environmental, Social and Governance (ESG) characteristics.
The Fund will be managed by Charles de Quinsonas and supported by Head of Emerging Market Debt Claudia Calich. It will draw on M&G’s wider emerging Markets debt and internal credit capabilities, as well as external providers of ESG research.
The investment strategy takes an active, high-conviction approach based on an in-depth analysis of corporate bonds, as well as an evaluation of the risks associated with the respective countries. The Fund aims to provide a combination of capital growth and income to deliver a return that is higher than that of the global corporate emerging markets bond over any three-year period. The JPM CEMBI Broad Diversified Index is a point of reference against which the performance of the Fund may be measured.
The emerging market corporate bond universe is both large and well-diversified from a country and sector perspective, providing access to a broad range of investment opportunities, while being a fixed income asset class with an attractive income stream on offer. At least 80% of the Fund is invested in debt securities issued by companies, including those backed or owned by governments, in emerging markets. The Fund will predominantly invest in USD denominated bonds but offers hedged share classes for investors who want to hedge the USD risk.
ESG criteria are assessed as part of the credit analysis of bond issuers, and act as an additional filter to the Fund’s exclusion policies. Positive screening is also performed, and the Fund will typically favour issuers with strong ESG credentials when bond valuations are comparable with issuers with a weaker ESG profile. In order to identify securities that meet the Fund’s ESG criteria, potential investments undergo a three-stage screening process:
- Screening out companies that are assessed to be in breach of the United Nations Global Compact Principles
- Filtering out companies that derive their revenues from specific sectors: tobacco, alcohol, adult entertainment, gambling, thermal coal, nuclear energy, defence and weapons*
- Using in-house assessment and external ESG research providers to analyse companies’ overall ESG credentials and exclude ESG laggards.
Charles de Quinsonas, Fund Manager of the M&G (Lux) Emerging Markets Corporate ESG Bond Fund says: “The EM corporate bond market has seen rapid growth over the past fifteen years, driven by the strong economic expansion across developing economies. But, we believe it remains an under-researched market, creating a wealth of opportunities for active credit selectors, with the expertise to assess the idiosyncratic risks. We see ESG analysis as being an important complement to traditional financial analysis, whilst allowing clients to align their investments more closely to their environmental and social value.”
Jim Leaviss, Head of Fixed Interest, Mutual Funds, M&G says: “Changing attitudes have helped to drive a steady increase in the number of responsible investment and ESG-related strategies over the past few years. Growth has been especially strong in the fixed income space although emerging market corporate bonds have remained an underserved part of the ESG landscape. By looking at emerging market debt through an ESG lens, the Fund provides a genuinely distinctive proposition for investors looking to gain exposure to the ever-growing and diversified emerging market corporate bond universe.”
M&G recently expanded its range of ESG-driven solution for bond investors, using our expertise in credit analysis, with the launch of an ESG Global High Yield fund in 2017.
*The Fund will filter out companies that derive more than 5% of their revenues for producers, or 10% of their revenues for distributors, from the following sectors: tobacco, alcohol, adult entertainment, gambling, thermal coal or nuclear energy. In addition, and on a best effort basis, subject to source data, companies that derive any revenue from defence and weapons are excluded.