Climate Transition Global Buy and Maintain Strategy
The strategy aims to capture climate transition opportunities across sectors, generating regular income to meet investors’ needs through a buy and maintain management style. While focusing on low turnover, capital preservation and limiting credit migration this strategy aims to decarbonize by 2050.
Competitive advantages
Yield-enhanced total return solutions
Consistent and competitive long-term performance, on both an absolute and risk-adjusted basis.
Benchmark-aware vs. Benchmark-centric
Absolute return orientation and flexibility to focus on less efficient sectors within the market.
Client partnership model
An extension of each client’s team—a tailored portfolio, not a “product.”
Optimal team structure
The team is functionally organized to extract value from the market.
Competitive income and risk controls
Well-underwritten income seeks to drive competitive total return and information ratios.
Focus on yield advantage and security selection
PM perspective
PM Perspective: Climate Transition Credit
Henrietta Pacquement, head of Global Fixed Income and Sustainability, discusses key 2024 takeaways and top opportunities for 2025 in climate transition global investment-grade credit investing.
Transcript
Henrietta Pacquement: I have three takeaways for 2024. Number one, global temperatures averaged over 1.5 degrees over pre-industrial temperatures for an unprecedented 12-month period. Number two, our much-criticized central bankers have defied the odds and engineered an economic soft landing—no mean feat given historical precedents. But this wasn't enough to save many elected officials, as number three, voters across the globe generally made governments pay for post-COVID war-induced inflation. How did that translate into global investment grade? A return of bond-like returns, a call we made at the start of 2024. Spreads tightened as consumers proved resilient. Rates were volatile, but they regained their diversification powers as inflation normalized. What did we get right? The recovery of the real estate sector. Our overweight benefited from corporate balance sheet repair. How does that sector fit into a climate strategy? Well, real estate is a key transition sector, given its end use status for temperature regulation. The resilient consumer—risk overweights in financials, consumer sectors, and technology helped performance as financial spreads converged towards non-financials. What's the climate angle there? Financials are facilitators of transition and adaptation. 2025 will be about living with the electoral choices of 2024. Geopolitics and redefining global trade relations are likely to loom large and have the potential to spill over into financial markets. Voters have generally asked for change. In the anglosphere, this has yielded clear mandates. In continental Europe, unstable coalitions and split parlements. In addition, three long-term themes will continue to disrupt. As we experience more climate change-driven amplification of natural phenomena, companies are going to continue to assess investments required for both transition and adaptation. AI exuberance is going to evolve from infrastructure spend to implementation. We'll be reviewing how AI gets integrated into corporate processes. Healthcare and wellbeing will be supported by demographics. Aging populations are looking to increase longevity in good health. We’ll be living at the tights. Low corporate spreads and high interest rates reflect healthier private sector balance sheets compared to more spendthrift governments. How are we going to be investing in that context? We'll be harvesting all-in yields. These are looking attractive. We'll be focusing on sectors supported by long-term themes, as we think they bring visibility. We'll also keep an eye on fundamentals as the cycle progresses. And we'll be maintaining flexibility to benefit from potential new issue premia widening and invest in most challenged cyclical sectors should the opportunity present itself.
To deliver strong performance for clients, the teams maintain an intense focus on finding high-quality, well-underwritten bonds with a competitive income advantage.
Key risks
Market risk: Security markets are volatile and may decline significantly in response to adverse issuer, regulatory, political, or economic developments with different sectors of the market and different security types reacting differently to such developments.
Debt securities risk: Debt securities are subject to both credit and interest rate risk. Credit risk is the possibility that the issuer or guarantor of a debt security may be unable, or perceived to be unable or unwilling, to pay interest or repay principal when they become due, and credit risk increases as an issuer’s credit quality or financial strength declines. Interest rate risk is the possibility that interest rates will change over time such that when interest rates rise, the value of debt securities tends to fall and the longer the terms of the debt securities held the greater the impact of this risk.
High yield risk: If a strategy invests in high yield securities (commonly known as junk bonds), these securities are considered speculative and have a much greater risk of default or of not returning principal and their values tend to be more volatile than higher-rated securities with similar maturities.
Foreign securities risk: If a strategy invests in the securities of non-U.S. issuers, these investments may be subject to lower liquidity, greater price volatility, and risks related to adverse political, regulatory, market, or economic developments and may be affected by changes in foreign currency exchange rates.
Investors should know that this strategy deployed may be subject to additional investment risks. For important information about the investment manager, please refer to the investment manager’s Form ADV Part 2, which is available upon request.
