Bond fund launches with an environmental, social and governance focus will become increasingly popular with advisers and investors despite the "challenging" backdrop for fixed interest.
Gavin Haynes, co-founder of Fairview Investing, said clients seeking income would also want to know if their investments were being managed along environmental, social and governance lines.
He said: "While short-term the environment for fixed interest is going to remain challenging in a backdrop of inflation and rising interest rates; longer-term there is undoubtedly going to be an increasing demand for bond funds that invest with an ESG focus."
His prediction came as Western Asset launched the Western Asset Sustainable Global Corporate Bond Fund into the UK market.
The fund, which is a sub-fund of the Dublin-domiciled Legg Mason Global Funds range, has a strong ESG focus.
I want to see high conviction and an ability to add value across different market conditions.Gavin HaynesThe managers of the fund aim to identify value and provide enhanced risk management, while also providing a transparent focus on sustainability and carbon reduction goals.
It will be managed in line with the investment philosophy and process of Western Asset’s flagship Global Credit strategy while integrating a proprietary, transparent and rigorous sustainable investment framework.
The fund is managed by Annabel Rudebeck, head of non-US credit, and Matt Jackson, portfolio manager, based in Western Asset’s London office.
Rudebeck leads Western Asset’s Global Credit team and is responsible for the daily management and strategic direction of the firm’s global credit portfolios. They will be supported by Bonnie Wongtrakool and Ryan Brist, who are both based in Western Asset’s California office.
Western Asset is a specialist investment manager for Franklin Templeton. When Franklin Templeton announced in 2020 it would buy Legg Mason, of which Western Asset was a wholly owned subsidiary, reports at the time said this would help make Franklin Templeton a fixed income giant.
The Western Asset Sustainable Global Corporate Bond fund targets carbon reduction.
The annual decrease in absolute portfolio weighted average carbon intensity, in addition to the need to maintain a weighted average carbon intensity that is at least 20 per cent below the Bloomberg Global Aggregate Corporate Index benchmark, gives the Fund the ability to achieve a positive impact.
It also helps the fund meet key sustainable development goals, such as the UN's Sustainable Development Goal 13 on Climate Action and SDG 77 on Affordable and Clean Energy.
Time will tell
Haynes said he thought the fund would be a "core proposition" for the UK market, as it is focused on investment grade corporate bonds primarily across developed markets.
He said: "The team states that carbon reduction is a key focus, but it is not an impact fund and falls into the less stringent SFDR Article 8 in terms of how and where it can invest."
But whether this particular fund would help meet the rising demand that Haynes predicted, he said "only time will tell".
Haynes added: "While Western has a well-resourced bond team, time will tell whether this new launch will widely appeal.
"If [clients are] paying active fees for bond exposure I want to see high conviction and an ability to add value across different market conditions.
"It is also important to look under the bonnet to ensure clients are happy with the managers' definition of sustainability (eg the model portfolio for this fund includes Royal Dutch Shell and Easyjet, which some investors may not want in a fund with a focus on carbon reduction)."
simoney.kyriakou@ft.com
