AXA WF US High Yield Low Carbon
External ratings agencies assign credit ratings to companies and governments issuing bonds based on an assessment of their creditworthiness. This rating can help to indicate the issuers likely ability to pay interest and principal as scheduled.
A high credit rating is considered ‘investment grade’ while a low credit rating is considered ‘high yield’. High yield bonds are more volatile with higher default risk among underlying issuers versus investment grade bonds. Issuers with low credit ratings need to pay higher interest as incentive to purchase their bonds. As with most investments, higher potential risks demand higher potential rewards to compensate. The high yield bond market was born in the US and that remains the largest and most liquid market.
A low carbon approach to investing in US high yield bonds is one that would seek a portfolio carbon footprint lower than the broader US high yield market. This can be achieved by excluding certain carbon-intensive sectors such as mining or many sub-sectors within energy.
It is also possible to use carbon intensity scores to select individual bonds across other sectors which will make a lower contribution to the overall portfolio carbon footprint. Carbon intensity refers to the amount of carbon dioxide equivalent released into the atmosphere as a result of the activities of a company and its direct suppliers. External providers such as Trucost (part of S&P Global), provide robust and standardised environmental data on a wide range of listed companies. Carbon intensity scores from such providers may be based on data and analysis relating to factors such as contribution to climate change, water use, waste disposal, fossil fuel exposure, land, water & air pollution, and the over-exploitation of natural resources.
Why Consider investing in US High Yield Bonds Low Carbon?
In the current environment of persistently low interest rates, bond investors are finding attractive yield difficult to come by. For those in a position to take on higher levels of credit risk, high yield bonds may provide a significant yield enhancement to a well-diversified portfolio.
At the same time, many investors are looking for investment solutions that focus on more than just financial performance as Environmental, Social and Governance (‘ESG’) issues rise-up the agenda. The 2015 Paris Climate Change Conference (COP21) triggered the transition to a low-carbon economy. Since then, a series of regulatory changes have taken place that have led to an increase in awareness of environmental issues. The result is that many investors are looking to align their portfolios with the transition to a low-carbon economy through ESG investing.
At AXA IM, we believe the global economy has entered a ‘decade of transition’ towards a more sustainable, de-carbonised model. During this transition, we think portfolios aiming to proactively reduce carbon intensity and look for low carbon investments will be better positioned to withstand non-financial risks and outperform the broad market. Carbon intensity is usually recognised as the most impactful metric to follow when focusing on the E portion of ESG. We believe it is a good way to evaluate what effort a company is making to try to minimize their carbon footprint.
Given the growing focus on ESG and climate change, a more environmentally conscious way to invest in the US high yield market could be a compelling proposition. Furthermore, we feel this is an opportune moment as carbon intensity scoring becomes more prevalent in the US high yield universe meaning the diversity of the opportunity set has increased versus a few years ago.
Our US High Yield Bonds Low Carbon strategy
Our strategy aims to help clients meet both financial return and ESG objectives by investing across the broad US high yield market, while targeting a material reduction in the carbon footprint.
We follow an exclusionary process which means we begin with constructing an investible universe by eliminating almost all the most carbon-intensive sectors. In addition, we manage carbon intensity and water intensity scores through our credit selection process within non-excluded sectors to avoid companies we view as excessively carbon intensive. As a fundamental credit manager, credit analysis remains the most important part of our process but we also believe ESG factors can be additive to performance as they provide an additional source of insight.
The strategy benefits from this combination through a well-resourced team with long experience of managing US high yield portfolios throughout multiple economic and credit cycles, alongside access to AXA IM’s proprietary ESG quantitative and qualitative data and research.
The ESG data used in the investment process are based on ESG methodologies which rely in part on third party data, and in some cases are internally developed. They are subjective and may change over time. Despite several initiatives, the lack of harmonized definitions can make ESG criteria heterogeneous. As such, the different investment strategies that use ESG criteria and ESG reporting are difficult to compare with each other. Strategies that incorporate ESG criteria and those that incorporate sustainable development criteria may use ESG data that appear similar, but which should be distinguished because their calculation method may be different.Details of the methodology and its limits are available in the prospectus.
Reasons to invest
Part of AXA IM’s ‘ACT’ range
The fund sits within the within the Sustainable category of our ACT range. This means investment decisions are guided by ESG themes, with the aim of helping clients meet both financial return and ESG objectives.
Lower carbon footprint
This is a US Core High Yield fund that invests across the broad US high yield market, but with a material reduction in the carbon footprint by actively managing the carbon intensity through our credit selection process.
A well-resourced team
Benefits from the combination of our team’s experience of managing US high yield portfolios throughout multiple economic and credit cycles with access to AXA IM’s proprietary ESG quantitative and qualitative data and research.
The ESG data used in the investment process are based on ESG methodologies which rely in part on third party data, and in some cases are internally developed. They are subjective and may change over time. Despite several initiatives, the lack of harmonized definitions can make ESG criteria heterogeneous. As such, the different investment strategies that use ESG criteria and ESG reporting are difficult to compare with each other. Strategies that incorporate ESG criteria and those that incorporate sustainable development criteria may use ESG data that appear similar, but which should be distinguished because their calculation method may be different.
Key risks — AXA WF US High Yield Bonds Low Carbon
Market risk: risk of variation of the Net Asset Value during the life of the Fund due to market movements (assets price volatility, widening of spreads) in general or in specific markets.
Liquidity Risk: risk of low liquidity level in certain market conditions that might lead the Fund to face difficulties valuing, purchasing or selling all/part of its assets and resulting in potential impact on its net asset value.
Credit Risk: Risk that issuers of debt securities held in the Fund may default on their obligations or have their credit rating downgraded, resulting in a decrease in the Net Asset Value.
Key figures AXA WF US High Yield Bonds Low Carbon
Aims for a carbon and water intensity at least 20% lower than the benchmark (1)
The number of US high yield credit specialists at AXA IM (2)
The number of dedicated Responsible Investment specialists embedded throughout research, investment and other teams across AXA IM (2)
1 Aims for carbon intensity and water intensity scores at least 20% lower than the ICE BofA US High Yield Index
2 Source: AXA IM as at 28 February 2021. Information about the staff team at AXA Investment Managers is only informative. We do not guarantee the fact that staff remain employed by AXA Investment Managers and exercise or continue to exercise in the team of AXA Investment Managers and/or at AXA Investment Managers
Our ACT Climate Range strategies
Multi Asset Impact
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Huge demographic and environmental changes are forecast to make CleanTech a $1.3 trillion market by 2020
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