Partner Insight: Should Sustainable Credit Go Global?

Royal London Asset Management’s Rachid Semaoune on RLAM’s newest sustainable fund

clock • 6 min read
Partner Insight: Should Sustainable Credit Go Global?

What is the key aim of the Global Sustainable Credit Fund?

Our aim is to invest in companies that have a positive impact on the environment and society without compromising on returns and credit quality. The investments have to meet our definition of sustainability and our criteria for financial soundness. It's not one or the other.

What motivated you to create the fund?

We wanted to widen our sustainable range's offering to include global sustainable credit, so that the range could hope to meet a broader set of client requirements - a lot of people want global sustainable credit as well as the sterling sustainable credit elements that are already available in our sustainable range. By doing so, we hoped also to capitalise on our expertise in credit analysis and to leverage a sustainable process that we have been developing in-house for many years, including the specific sustainable credit expertise we've gained over the years while developing the existing sustainable credit elements of the range.

What is the fund's focus in terms of geography and credit quality?

The fund is global with a strong focus on US, Europe, the UK, and Australia. In theory we can also invest in emerging markets provided those countries support human and workers' rights but this is likely to be a very small part of the portfolio. The fund is primarily invested in investment grade securities.

Does the global focus help in terms of diversification?

The fund is highly diversified by geography but also in terms of sector and holdings. We typically have more than 200 holdings within the portfolio to try to diversify away the impact of any single default.

The weight that we attribute to a certain issuer in a portfolio will typically depend on the credit rating, the sector and maturity of the bond or the security, and the covenant package embedded in the bond. The fund will typically have a higher allocation to secured bonds than its benchmark, as well as a lower carbon intensity.

Click here to read more of the RLAM team's views on sustainable credit including the benefits of taking a global approach

 

For professional clients only, not suitable for retail clients. The views expressed are the contributor's own and do not constitute investment advice.

INVESTMENT RISKS

Past performance is not a guide to future performance.

The value of investments and the income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested.

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Credit Risk: Should the issuer of a fixed income security become unable to make income or capital payments, or their rating is downgraded, the value of that investment will fall. Fixed income securities that have a lower credit rating can pay a higher level of income and have an increased risk of default.

Derivative Risk: Derivatives are highly sensitive to changes in the value of the underlying asset which can increase both Fund losses and gains. The impact to the Fund can be greater where they are used in an extensive or complex manner, where the Fund could lose significantly more than the amount invested in derivatives.

Efficient Portfolio Management (EPM) Techniques: The Fund may engage in EPM techniques including holdings of derivative instruments. Whilst intended to reduce risk, the use of these instruments may expose the Fund to increased price volatility.

Emerging Markets Risk: Investing in Emerging Markets may provide the potential for greater rewards but carries greater risk due to the possibility of high volatility, low liquidity, currency fluctuations, the adverse effect of social, political and economic instability, weak supervisory structures and accounting standards.

Exchange Rate Risk: Changes in currency exchange rates may affect the value of this investment.

Interest Rate Risk: Fixed interest securities are particularly affected by trends in interest rates and inflation. If interest rates go up, the value of capital may fall, and vice versa. Inflation will also decrease the real value of capital.

Leveraged Risk: The Fund employs leverage with the aim of increasing the Fund's returns or yield, however it also increases costs and its risk to capital. In adverse market conditions the Fund's losses can be magnified significantly.

Liquidity Risk: In difficult market conditions the value of certain fund investments may be difficult to value and harder to sell, or sell at a fair price, resulting in unpredictable falls in the value of your holding.

 

IMPORTANT INFORMATION

For professional clients only, not suitable for retail clients.

This is a financial promotion and is not investment advice.

The views expressed are those of the authors at the date of publication unless otherwise indicated, which are subject to change, and are not investment advice.

The Royal London Global Sustainable Credit Fund is a sub-fund of Royal London Asset Management Bond Funds plc, an open-ended investment company with variable capital and segregated liability between sub-funds. Incorporated with limited liability under the laws of Ireland and authorised by the Central Bank of Ireland as a UCITS Fund. It is a recognised scheme under section 264 of the Financial Services and Markets Act 2000. The Investment Manager is Royal London Asset Management Limited. Most of the protections provided by the UK regulatory system, and the compensation under the Financial Services Compensation Scheme, will not be available.

Royal London Sustainable Managed Income Trust, Royal London Sustainable Managed Growth Trust, Royal London Sustainable Diversified Trust, Royal London Sustainable Word Trust and Royal London Sustainable Leaders Trust are held within RLUM Limited Unit Trusts, which is an authorised unit trust scheme. The Manager is RLUM Limited, authorised and regulated by the Financial Conduct Authority, with firm reference number 144032.

The Royal London Global Sustainable Equity Fund is a sub-fund of Royal London Equity Funds ICVC, an open ended investment company with variable capital with segregated liability between sub-funds, incorporated in England and Wales under registered number IC000807. The Authorised Corporate Director (ACD) is Royal London Unit Trust Managers Limited, authorised and regulated by the Financial Conduct Authority, with firm reference number 144037.

For more information on the funds or trusts or the risks of investing, please refer to the Prospectus or Key Investor Information Document (KIID), available via the relevant Fund Information page on www.rlam.co.uk.

Issued in June 2021 by Royal London Asset Management Limited, 55 Gracechurch Street, London, EC3V 0RL. Authorised and regulated by the Financial Conduct Authority, firm reference number 141665. A subsidiary of The Royal London Mutual Insurance Society Limited.

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