M&G Investments has launched M&G (Lux) Emerging Markets Corporate ESG Bond 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.