Fund Name SRI Style Product Region Asset Type Launch Date
Phoenix Wealth Aegon Ethical Corporate Bond Pn S4 Ethical Pension UK Fixed Interest 20/10/08

Objectives

The Aegon Ethical Corporate Bond strategy aims to stand out from the crowd with ethical, client-led exclusions. The strategy’s investment objective is to provide a combination of income and capital growth over any seven-year period. The strategy invests primarily in sterling denominated bonds issued by a company or organisation which meets the predefined ethical criteria. Investments may encompass investment grade corporate bonds, cash and up to 10% of the portfolio in high yield bonds.

Fund Size: £0.75m

As at: 30/11/22

ISIN: GB00B3DBDD41, GB00B3YK8S07, GB00B3Q1N080


Contact: mark.ferguson@aegonam.com

Sustainable, Responsible &/or ESG Overview

This pension product is linked to the "Aegon Ethical Corporate Bond"  fund. The following information refers to the primary (OIEC) fund.

 

The Aegon Ethical Corporate Bond Fund employs a multi-faceted responsible investment approach:

  • Established ethical screening process evaluating the effects that certain companies’ activities, products, and services can have on the environment and society at large. We exclude companies based on client-led exclusion criteria and by combining specialist in-house and third-party screening in a process. • ESG analysis fully embedded utilising a proprietary ESG research framework to assess an issuer’s material ESG risks.
  • Investments in sustainable themes/pillars – We can invest in a range of sustainable environmental & social themes e.g., climate change, inclusion.
  • Selective investments in ESG labelled bonds – Individual selection of green, social, sustainability bonds, issued to fund projects that have positive environmental, climate and social benefits.


The outcome is a portfolio with a strong ethical foundation, attractive ESG profile, good alignment with UN Sustainable Development Goals, and a low carbon footprint relative to the broader UK corporate bond market.

Primary fund last amended: 09/06/23 06:07

Information received directly from Fund Manager

Please select what you would like to read:
  • Fund Filters

    Sustainability

    Limits exposure to carbon intensive industries

    Favours cleaner, greener companies

    Sustainability focus

    Encourage more sustainable practices through stewardship

    Nature & Biodiversity

    Unsustainable / illegal deforestation exclusion policy

    Avoids genetically modified seeds/crop production

    Genetic engineering exclusion

    Climate Change & Energy

    Nuclear exclusion policy

    Coal, oil & / or gas majors excluded

    Invests in clean energy / renewables

    Fracking and tar sands excluded

    Arctic drilling exclusion

    Fossil fuel reserves exclusion

    Energy efficiency theme

    Fossil fuel exploration exclusion - direct involvement

    Targeted Positive Investments

    Invests > 5% in green bonds

    Invests > 5% in sustainable bonds

    Invests > 50% in green bonds

    Human Rights

    Child labour exclusion

    Oppressive regimes (not free or democratic) exclusion policy

    Modern slavery exclusion policy

    Meeting Peoples' Basic Needs

    Invests > 5% in social housing

    Invests > 50% in social housing

    Ethical Values Led Exclusions

    Ethical policies

    Animal welfare policy

    Animal testing exclusion policy

    Tobacco production avoided

    Armaments manufacturers avoided

    Alcohol production excluded

    Gambling avoidance policy

    Pornography avoidance policy

    Gilts / government bonds - exclude some

    Civilian firearms production exclusion

    Banking & Financials

    Predatory lending exclusion

    Exclude banks with significant fossil fuel investments

    Governance & Management

    Governance policy

    Avoids companies with poor governance

    Encourage board diversity e.g. gender

    Encourage higher ESG standards through stewardship activity

    Fund Governance

    ESG integration strategy

    Asset Size & Metrics

    Over 50% small / mid cap companies

    Invests in small, mid and large cap companies

    Invest in supranationals

    How The Fund Works

    Strictly screened ethical fund

    Positive selection bias

    Negative selection bias

    Focus on ESG risk mitigation

    SRI / ESG / Ethical policies explained on website

    Assets mapped to SDGs

    Impact Methodologies

    Invests in environmental solutions companies

    Invests in social solutions companies

    Invests in sustainability / ESG disruptors

    Aim to deliver positive impacts through engagement

    Labels & Accreditations

    RSMR rated (OEIC funds only)

    Intended Clients & Product Options

    Faith friendly

    Intended for investors interested in ESG / sustainability

    Intended for vegetarians and / or vegans

    Available via an ISA (OEIC only)

    Intended for clients who want to have a positive impact

    Fund management company information

    About The Business

    ESG / SRI engagement (AFM company wide)

    Responsible ownership / stewardship policy (AFM company wide)

    Responsible ownership policy for non SRI funds (AFM company wide)

    Responsible ownership / ESG a key differentiator (AFM company wide)

    In-house diversity improvement programme (AFM company wide)

    Senior management KPIs include environmental goals (AFM company wide)

    Invests in newly listed companies (AFM company wide)

    Invests in new sustainability linked bond issuances (AFM company wide)

    Resources

    In-house responsible ownership / voting expertise

    Employ specialist ESG / SRI / sustainability researchers

    Use specialist ESG / SRI / sustainability research companies

    ESG specialists on all investment desks (AFM company wide)

    Collaborations & Affiliations

    PRI signatory

    UKSIF member

    Climate Action 100+ or IIGCC member

    Fund EcoMarket partner

    Investment Association (IA) member

    Accreditations

    UK Stewardship Code signatory (AFM company wide)

    Engagement Approach

    Regularly lead collaborative ESG initiatives (AFM company wide)

    Engaging on climate change issues

    Engaging with fossil fuel companies on climate change

    Engaging to reduce plastics pollution / waste

    Engaging to encourage responsible mining practices

    Engaging on biodiversity / nature issues

    Engaging on human rights issues

    Engaging on labour / employment issues

    Engaging on diversity, equality and / or inclusion issues

    Engaging on governance issues

    Engaging on responsible supply chain issues

    Engaging to encourage a Just Transition

    Climate & Net Zero Transition

    Encourage carbon / greenhouse gas reduction (AFM company wide)

    Net Zero commitment (AFM company wide)

    Working towards a ‘Net Zero’ commitment (AFM company wide)

    Carbon offsetting - offset carbon as part of our net zero plan (AFM company wide)

    In-house carbon / GHG reduction policy (AFM company wide)

    Net Zero - have set a Net Zero target date (AFM company wide)

    Transparency

    Full SRI policy information on company website

    Full SRI policy information available on request

  • Sustainable, Responsible &/or ESG Policy:

    We apply a range of client-led exclusions at the start of our investment process which exclude companies undertaking certain unethical activities from the fund’s investment universe. The exclusions are informed by our conversations with clients to understand their concerns and by 30+ years of experience managing ethical funds.

    Although the strategy does not apply any positive screening criteria, it may invest in themes that could be considered environmentally or socially responsible, like alternative energy or social housing companies, but only when these companies pass the initial exclusion criteria.

    We aim for transparency in our screening process and publish the exclusion criteria we use. This means it is easy for clients to understand the types of companies we can and cannot invest in. Our underlying philosophy is to avoid companies that cause significant negative effects in society or the environment.

    We then blend top-down and bottom-up analysis to deliver performance through the economic cycle. Specifically, we target six main sources of alpha: asset allocation, ratings selection, sector selection, stock selection, duration positioning and yield curve positioning. Our commitment to generating consistent risk-adjusted returns ensures that a range of positions is in force at any one time – we will not allow one source of alpha to dominate and will vary the influence of each source depending on where we are in the economic cycle.

    From a top-down perspective, we will vary the portfolio’s interest rate and credit risk profile based on the fixed income team’s overall research and opinions. The portfolio’s credit exposure can be varied through asset allocation between its core investment grade credit universe and high yield bonds. In addition, the credit profile can be shaped through our sector and ratings preferences, which are driven by both top-down and bottom-up research. The team’s long-term strategic interest rate strategy is also reflected in the portfolio. The fund’s duration position is also actively managed. Historically, this could only be managed via the fund’s underlying corporate bonds as the fund’s exclusion criteria prevents it from holding government bonds or government bond futures. However, over the last two years we have welcomed the introduction of green gilts as a cost-efficient way to actively manage the fund’s duration. The UK Government’s Green Financing Framework was published on 30 June 2021. The Framework details the types of expenditures that will be financed by green gilt issuance to help meet the government's green objectives, and also commits the government to reporting on the social co-benefits, such as job creation, arising from these expenditures.

    Importantly, we are highly active in seeking to add value from positive stock selection (identifying undervalued companies' bonds) and negative stock selection (avoiding credit blow-ups). We use both external screening databases and in-house research to ensure the companies in our ethical universe are suitable for investment. We adopt client-led exclusions that screen out companies that engage in certain unacceptable activities. Our ethical portfolio screening process is shown below:


    Animal welfare:

    • Provide animal testing services or manufacture or sell animal-tested cosmetics, household products or pharmaceuticals.
    • Have any involvement in intensive farming.
    • Operate abattoirs or slaughterhouse facilities.
    • Are producers or retailers of meat, poultry, fish or dairy products or slaughterhouse by-products.

    Military:

    • Manufacture armaments, nuclear weapons or associated products.

    Nuclear power:

    • Provide critical services to, or own or operate, nuclear facilities

    Environment:

    • Are involved in activities which are commonly held to be environmentally unsound – specifically manufacturers of PVC, ozone depleting chemicals and hazardous pesticides.
    • Are in breach internationally recognised conventions on biodiversity and companies in energy intensive industries which are not tackling the issue of climate change.

    Political donations

    • Have made political donations of more than 1% or revenues in the past 12 months.

    Genetic engineering

    •  Have patented genes

    Gambling

    • Have investments in betting shops, casinos or amusement arcades accounting for more than 10% of their total business.

    Alcohol

    • Derive more than 10% of their total business through involvement in brewing, distillation or sale of alcoholic drinks

    Tobacco

    • Derive more than 10% of their business from the growing, processing or sale of tobacco products.

    Pornography

    • Provide adult entertainment services

    Banks

    • Are corporate or international banks with exposure to large corporate or Third World debt.

    Oppressive regimes

    • Operations in countries with poor human rights records, and which have no established management policies on human rights issues.

     

     

  • Process

    Before the investment process begins, the investment universe for the fund is set by firstly applying the fund’s ethical exclusion criteria as set out in the previous section.

    Our fixed income investment process provides an effective and disciplined approach to idea generation, implementation, and review. The process focuses on identifying profitable investment ideas and provides a forum for constructive engagement across the team. Our core process has been successfully used for over 20 years.

    We target six principal sources of alpha within fixed income markets. These falls into three main categories: macro positioning, top-down credit strategy and bottom-up stock selection.

    As a team we are highly risk-aware and will not allow one source of risk to dominate our portfolios. The relative importance of each source varies depending on where we are in the economic and market cycle and this approach enables us to outperform through changing market conditions and provided some resilience at periods of market stress.

     

    Top-down process

    We adopt the following process to frame our macro positioning for dynamic interest rate and yield curve management and to frame our credit risk positioning.

    During our monthly strategy week, the team attends a top-down meeting where it debates and agrees on our short to medium-term and longer-term global macro-outlooks, moreover, trading ranges, targets and other metrics are discussed.

    Our credit analysts submit their research and opinions prior to the meeting. This is based on our Quadrant Analysis research framework and ratings on each asset class, and region. This information provides a starting point for discussions around the team’s interest rate strategy. This will include duration, country preferences and yield curve positioning.

    We encourage challenge and debate from our investment professionals. This leads to a holistic strategy supported by the entire team, with portfolio managers having the freedom to implement the agreed strategy subject to each fund/mandates’ investment guidelines and risk/return expectations.

     

    Asset Allocation/credit risk positioning

    Across our fixed income portfolios, we can asset allocate between government bonds, investment grade, high yield, and emerging market bonds across different countries, as dictated by fund and mandate guidelines. We also consider our top-down credit risk positioning.

    In addition to meetings within our UK based team, our rates and credit specialists meet via video conference with their US and Netherlands-based colleagues. While decision making and implementation for this strategy occurs in the UK, we are able to benefit from the research and insights from across our Global Fixed Income platform.

    The proposed product is primarily a sterling focused investment grade corporate bond strategy. The strategy does not invest in other asset classes, such as equities, or take active currency positions.
    We blend our strong bottom-up credit selection capabilities with top-down views and credit risk positioning to generate strong risk-adjusted returns to outperform through market cycles.

     

    Position Sizing

    Our position sizes ensure that overall bottom-up stock ideas make a meaningful contribution to our strategy’s performance.

    The formal, regulatory sizing restrictions (relating to the UCITS fund within the strategy) limit the strategy to holding a maximum of 10% in a single non-government issuer, while all exposures over 5% cannot in aggregate exceed 40%.

    While there are no formal limits beyond what can be inferred from the regulatory holding size limits, we would typically seek to hold between 120 and 160 holdings in this strategy. Practically, based on our risk assessment, aggregate exposure to individual companies typically ranges between 0.5% and 2.0% of the strategy (although high quality debt positions can be larger in size).

     

    Idea generation

    The core of our idea generation process involves bottom-up in-depth business analysis of individual companies and is the prime responsibility of our global credit research team.

    In order to research ideas, we use our proprietary Quadrant Analysis Framework. This is the cornerstone of our research process and forms the basis of both our credit and rates analysis. The team analyses opportunities and risks under four principal headings: Fundamentals, Valuations, Technicals and Sentiment.

    Each analyst seeks out opportunities in their area and will research an investment’s risk and reward prospects before sharing their views with the portfolio management group.
    We use these four quadrants to assess all opportunities and combine to give an overall recommendation. This framework ensures research is carried out and documented consistently.

     

    Credit research and ESG integration

    Within our active fixed income portfolios, we focus on the sustainability of cash flows. This ultimately drives the ability of the companies in which we invest in to pay coupons, repay at maturity, and drive total returns.

    Integration of ESG factors into the investment process first occurs as part of the fundamental credit research analysis for issuers. Our credit research analysts integrate ESG information into their analysis by evaluating data from various third-party sources in combination with our internal research to assign credits into a proprietary ESG category.

    Although ESG factors are identified and assessed individually, we take a holistic approach to integrating ESG-specific factors along with more traditional credit analysis to understand the overall credit profile and how it affects the investment opportunity as a whole.

     

    ESG integration typically includes four key steps.

    • Identification. Research analysts identify important ESG and non-ESG factors specific to the company and the industry they operate within.
    • Assessment. Research analysts assess if each factor materially affects the issuer’s fundamentals.
    • Incorporation. Research analysts incorporate the fundamental impact into the credit assessment and their credit recommendation to support a discussion with portfolio managers.
    • Integration. Portfolio managers integrate analysts’ recommendations, including ESG factors, into the portfolio construction process as appropriate to the client’s mandate.


    The credit research team’s proprietary analysis incorporates qualitative and quantitative elements in an effort to determine and assess the potential materiality of the ESG issues and the impact on an issuer’s credit fundamentals. Focus is given to the potential economic impact ESG issues may have on the issuer’s ability and willingness to meet debt obligations. Materiality of ESG factors is ultimately defined according to the team’s proprietary ESG categories. An ESG category is assigned to each issuer based on the analyst’s determination of the materiality of ESG factors.

    The framework is based on a 1-5 ESG categorisation with 1 being the highest category (lowest ESG risks) and 5 being the lowest category for those companies which carry the greatest ESG related risks. The ESG assessment and assigned category are incorporated into a research ‘tearsheet’ and recorded in our Bloomberg research database to be accessed by the portfolio managers. Climate related risks are also included within our ESG analysis through the ‘Environmental’ assessment, with a clear focus on the sectors deemed as higher risk sectors (energy, utilities, transport, industrials, and to a lesser degree banks and insurance). The assessment particularly focuses on the carbon transition and related risks, looking inter alia into physical risks, stranded assets assessment as well as political and regulatory risks. Collaboration and interaction between the credit analysts, portfolio managers and RI team is ongoing and formalised through monthly tri-partite meetings as a forum for discussion on key ESG themes, risks and opportunities and engagement.

     

    Selection of ESG labelled bonds

    The fund can also make selective investments in ESG labelled bonds through individual selection of green, social, sustainability bonds, issued to fund projects that have positive environmental, climate and social benefits. We continue to increase the fund’s exposure to ESG-labelled bonds issued to fund projects that have positive environmental, climate and social benefits with proceeds earmarked for specific projects. This is a market that can be vulnerable to ‘greenwashing’ and requires experienced, specialist resources to consider each opportunity and the potential risks. We draw on the expertise of our responsible investment team to analyse objectives and understand how robust the ring-fencing is for ESG projects.

     

    Investments in sustainable themes

    Through our bottom-up stock selection process, we can invest in bonds from a wide range of issuers and sectors, including investments in sustainable themes such as climate change, identifying those companies who are reducing polluting emissions through insight and innovation; eco solutions - products and services that help to protect and improve the ecosystem of our planet; and inclusive themes like companies who are addressing inequality and helping to solve demographic challenges (e.g., social housing).

    Whilst the fund does not have an explicit objective around these types of investments, we map them to the sustainable themes common to our range of sustainable products. The outcome is that the c50-70% of Aegon Ethical Corporate Bond Fund holdings can be mapped to our sustainable investment pillars.

     

    External Research

    An independent view of the issuer’s or security’s credit fundamentals provides valuable insight into understanding the risk/reward decision. In developing this view, the firm’s research analysts use a wide range of internal and external inputs. However, the firm considers proprietary internal research to be more important when evaluating credit fundamentals.

    Our credit research team conducts proprietary research on companies owned across the various credit-related composites. The process may incorporate external research sources including market and financial data, rating agencies, ESG specialists, covenant and distressed experts, macroeconomic data providers, research from sell side firms, company filings, news providers and aggregators and industry publications which are considered while conducting this analysis to help ensure analysts have a comprehensive view of the issuer as well as understanding the market perspective.

    External sources of information for the firm’s research teams may include:

    •  Market and financial data: Bloomberg® and Capital IQ
    • Ratings: Standard & Poor’s® and Moody’s®
    • ESG providers: MSCI ESG Research and Sustainalytics
    • Covenant and distressed experts: Xtract Research and Reorg Research
    • Macroeconomic content providers: Piper Sandler, Cornerstone Macro and Peterson Institute
    • Sell side research firms
    • Industry publications
    • Company filings
    • News providers and aggregators


    Interaction with credit issuers is also a valuable input to the analytical process. While it is important to acknowledge the inherent bias of such discussions, the information provided gives insight into the quality of the issuer company management team, their ability to deliver sustainable results and the overall strategy for the business. These meetings may occur virtually or in person.


    Challenge

    By consistently applying our Quadrant Analysis Framework, the team can easily compare and challenge the investment views and recommendations. We have a series of strategy meetings including weekly fixed income meeting, our formal monthly top down and asset allocation strategy meetings and moving from a top-down focus to bottom-up we have twice weekly trade ideas meetings and research/asset class meetings between the analysts and portfolio managers to review new ideas and monitor/review existing holdings. Each specialist presents their recommendations including the reasons supporting their decisions and the risks to their recommended view. The team challenges and tests these views to craft a holistic investment strategy and ensure the robustness of stock selection ideas.


    Implementation

    Once the team’s strategy is agreed, everyone is required to implement the strategy according to their portfolio’s specific requirements. The portfolio managers assess the suitability of each element of the strategy for their portfolio and liaise with the relevant specialist focusing on position sizing, impact of existing positions and liquidity needs. Portfolio managers cannot position their portfolio contrary to the team’s strategy. It may be that an idea is best expressed using different issuers, maturities or bonds depending on each portfolio’s risk appetite and return profile.


    Review

    We have regular meetings to review our strategy. Alongside the monthly strategy weeks, there are weekly meetings where the whole team or groups of specialists review the overarching strategy from a top-down and bottom-up focus. We also have shorter daily morning meetings, where everyone highlights important news flow or trade ideas as they arise.

    Aside from these scheduled meetings, our investment professionals are responsible for continuous and thorough monitoring of their portfolios and outstanding trade recommendations. When an investment view changes, the team works together to implement the changed view quickly and effectively.

    On a monthly basis the portfolio managers, analysts and the RI team meet to review ESG related matters, challenge ESG views and explore key ESG themes and material ESG risks for portfolios. We regularly screen our fixed income holdings against third-party ESG ratings - these outputs are then reviewed and discussed. For dedicated ESG mandates, this is part of the ongoing reporting for portfolio managers and for client reporting.

    We have a dedicated chat room for trade ideas. Portfolio managers will bring to the whole team’s attention recent news, views or information. Additionally, if a portfolio manager receives a noticeable market bid or offer, that price will be made available to all of the portfolios. If a trade is executed, it will be implemented across portfolios that need to change risk positions or pro-rata.

  • Resources, Affiliations & Corporate Strategies

    Our dedicated responsible investment team serves as a company-wide, global resource for responsible investment practices. Team members lend their expertise to ESG integration initiatives, contribute to responsible investment product development and lead active ownership and sustainability research activities to promote understanding of ESG issues. Furthermore, the responsible investment specialists serve a central resource for responsible investment education and best practices.

    As of December 31, 2022, the responsible investment (RI) team consists of 19 professionals (1)

     

    Primary duties of the responsible investment team

    RI solutions and ESG integration

    • • Conduct sustainability research underpinning sustainability-themed solutions
    • Support research analysts with ESG integration
    • Advise on industry best practices
    • Evaluate ESG training opportunities
    • Evaluate external ESG research

    Engagement and voting

    • Engage with issuers on behalf of most of our investment platforms
    • Encourage change in an effort to generate long-term economic value and reduce risk
    • Seek compliance with client ESG requirements and demands
    • Partner with other investors where appropriate

    Advisory and reporting

    • Help develop, enhance and implement clients’ RI policies
    • Monitor ESG/RI policy and regulatory developments
    • Produce RI reports and advise on client ESG reporting
    • Coordinate and complete relevant external assessments of Aegon AM’s RI capabilities

     

    (1) Personnel may be employed by any of the Aegon AM affiliates.

     

    One or more Aegon Asset Management affiliates endorse the most common international guidelines and business principles and actively subscribes to them when possible. Examples include:

    • Climate Action 100: In 2017, Aegon AM joined Climate Action 100+. Climate Action 100+ is an investor initiative aimed at ensuring the world’s largest greenhouse emitters take necessary action on climate change.
    • Net Zero Asset Managers Initiative: In November 2021, Aegon AM became a signatory to the Net Zero Asset Managers Initiative. As part of this initiative, we will continue to collaborate with clients on their decarbonization objectives and continue to engage with companies to encourage greenhouse gas measurement, targets and reduction.
    • United Nations Principles for Responsible Investment (PRI): Aegon AM has been a signatory to the UN-supported PRI since February 2011. As a member, we commit to upholding the six principles for responsible investment and reporting annually on our progress. The PRI, an UN-supported network of investors, works to promote sustainable investment through the incorporation of environmental, social and governance issues into investment and ownership decisions.
    • Regional Corporate Governance Codes – Aegon AM complies with local corporate governance codes and best practices. For example, Aegon AM UK is a signatory to the UK Stewardship Code. Aegon AM is also a member of Eumedion, an independent foundation whose objective it is to maintain and further develop good corporate governance in asset owners and asset managers established in the Netherlands.

    Aegon AM also has extensive experience managing client mandates to adhere to specific international standards and policies. Examples of such standards include UN Global Compact principles, UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. Further, through our active ownership activities, we engage with companies to encourage adoption of relevant standards and guidelines. Finally, we also comply with applicable local sustainable finance regulations such as the Sustainable Finance Disclosure Regulation (SFDR) in the EU.

    Next to incorporating international guidelines and business principles into our investment processes in alignment with clients’ expectations, Aegon Asset Management interacts with various collaborative investor initiatives. A full overview can be found in the Aegon AM Responsible Investment Report.

     

  • Fund Holdings

    Voting Record

    Disclaimer

    For Professional Clients only and not to be distributed to or relied upon by retail clients.

    Past performance does not predict future returns. Outcomes, including the payment of income, are not guaranteed.

    Opinions expressed represent our understanding of the current and historical positions of the market and are not a recommendation or advice.

    This document is accurate at the time of writing and is subject to change without notification.

    All data is sourced to Aegon Asset Management unless otherwise stated. Data attributed to a third party ("3rd Party Data") is proprietary to that third party and/or other suppliers (the "Data Owner") and is used by Aegon Asset Management under licence. 3rd Party Data: (i) may not be copied or distributed; and (ii) is not warranted to be accurate, complete or timely. None of the Data Owner, Aegon Asset Management or any other person connected to, or from whom Aegon Asset Management sources, 3rd Party Data is liable for any losses or liabilities arising from use of 3rd Party Data.

    Aegon Asset Management UK plc is authorised and regulated by the Financial Conduct Authority.

    Aegon Asset Management UK plc is the ACD of Aegon Asset Management UK ICVC, Aegon Asset Management UK Investment Portfolios ICVC and the AFM of Aegon Asset Management UK Unit Trust. UK Funds are registered for distribution in the UK only.

     

Fund Name DS SRI Style Product Region Asset Type Launch Date
Phoenix Wealth Aegon Ethical Corporate Bond Pn S4 Ethical Pension UK Fixed Interest

Fund Size: £0.75

Total screened & themed / SRI assets: £

Total Responsible Ownership assets: £

Total assets under management: £

As at: 30/11/22

Sustainable, Responsible &/or ESG Policy:

We apply a range of client-led exclusions at the start of our investment process which exclude companies undertaking certain unethical activities from the fund’s investment universe. The exclusions are informed by our conversations with clients to understand their concerns and by 30+ years of experience managing ethical funds.

Although the strategy does not apply any positive screening criteria, it may invest in themes that could be considered environmentally or socially responsible, like alternative energy or social housing companies, but only when these companies pass the initial exclusion criteria.

We aim for transparency in our screening process and publish the exclusion criteria we use. This means it is easy for clients to understand the types of companies we can and cannot invest in. Our underlying philosophy is to avoid companies that cause significant negative effects in society or the environment.

We then blend top-down and bottom-up analysis to deliver performance through the economic cycle. Specifically, we target six main sources of alpha: asset allocation, ratings selection, sector selection, stock selection, duration positioning and yield curve positioning. Our commitment to generating consistent risk-adjusted returns ensures that a range of positions is in force at any one time – we will not allow one source of alpha to dominate and will vary the influence of each source depending on where we are in the economic cycle.

From a top-down perspective, we will vary the portfolio’s interest rate and credit risk profile based on the fixed income team’s overall research and opinions. The portfolio’s credit exposure can be varied through asset allocation between its core investment grade credit universe and high yield bonds. In addition, the credit profile can be shaped through our sector and ratings preferences, which are driven by both top-down and bottom-up research. The team’s long-term strategic interest rate strategy is also reflected in the portfolio. The fund’s duration position is also actively managed. Historically, this could only be managed via the fund’s underlying corporate bonds as the fund’s exclusion criteria prevents it from holding government bonds or government bond futures. However, over the last two years we have welcomed the introduction of green gilts as a cost-efficient way to actively manage the fund’s duration. The UK Government’s Green Financing Framework was published on 30 June 2021. The Framework details the types of expenditures that will be financed by green gilt issuance to help meet the government's green objectives, and also commits the government to reporting on the social co-benefits, such as job creation, arising from these expenditures.

Importantly, we are highly active in seeking to add value from positive stock selection (identifying undervalued companies' bonds) and negative stock selection (avoiding credit blow-ups). We use both external screening databases and in-house research to ensure the companies in our ethical universe are suitable for investment. We adopt client-led exclusions that screen out companies that engage in certain unacceptable activities. Our ethical portfolio screening process is shown below:


Animal welfare:

  • Provide animal testing services or manufacture or sell animal-tested cosmetics, household products or pharmaceuticals.
  • Have any involvement in intensive farming.
  • Operate abattoirs or slaughterhouse facilities.
  • Are producers or retailers of meat, poultry, fish or dairy products or slaughterhouse by-products.

Military:

  • Manufacture armaments, nuclear weapons or associated products.

Nuclear power:

  • Provide critical services to, or own or operate, nuclear facilities

Environment:

  • Are involved in activities which are commonly held to be environmentally unsound – specifically manufacturers of PVC, ozone depleting chemicals and hazardous pesticides.
  • Are in breach internationally recognised conventions on biodiversity and companies in energy intensive industries which are not tackling the issue of climate change.

Political donations

  • Have made political donations of more than 1% or revenues in the past 12 months.

Genetic engineering

  •  Have patented genes

Gambling

  • Have investments in betting shops, casinos or amusement arcades accounting for more than 10% of their total business.

Alcohol

  • Derive more than 10% of their total business through involvement in brewing, distillation or sale of alcoholic drinks

Tobacco

  • Derive more than 10% of their business from the growing, processing or sale of tobacco products.

Pornography

  • Provide adult entertainment services

Banks

  • Are corporate or international banks with exposure to large corporate or Third World debt.

Oppressive regimes

  • Operations in countries with poor human rights records, and which have no established management policies on human rights issues.

 

 

Sustainable, Responsible &/or ESG Process:

Before the investment process begins, the investment universe for the fund is set by firstly applying the fund’s ethical exclusion criteria as set out in the previous section.

Our fixed income investment process provides an effective and disciplined approach to idea generation, implementation, and review. The process focuses on identifying profitable investment ideas and provides a forum for constructive engagement across the team. Our core process has been successfully used for over 20 years.

We target six principal sources of alpha within fixed income markets. These falls into three main categories: macro positioning, top-down credit strategy and bottom-up stock selection.

As a team we are highly risk-aware and will not allow one source of risk to dominate our portfolios. The relative importance of each source varies depending on where we are in the economic and market cycle and this approach enables us to outperform through changing market conditions and provided some resilience at periods of market stress.

 

Top-down process

We adopt the following process to frame our macro positioning for dynamic interest rate and yield curve management and to frame our credit risk positioning.

During our monthly strategy week, the team attends a top-down meeting where it debates and agrees on our short to medium-term and longer-term global macro-outlooks, moreover, trading ranges, targets and other metrics are discussed.

Our credit analysts submit their research and opinions prior to the meeting. This is based on our Quadrant Analysis research framework and ratings on each asset class, and region. This information provides a starting point for discussions around the team’s interest rate strategy. This will include duration, country preferences and yield curve positioning.

We encourage challenge and debate from our investment professionals. This leads to a holistic strategy supported by the entire team, with portfolio managers having the freedom to implement the agreed strategy subject to each fund/mandates’ investment guidelines and risk/return expectations.

 

Asset Allocation/credit risk positioning

Across our fixed income portfolios, we can asset allocate between government bonds, investment grade, high yield, and emerging market bonds across different countries, as dictated by fund and mandate guidelines. We also consider our top-down credit risk positioning.

In addition to meetings within our UK based team, our rates and credit specialists meet via video conference with their US and Netherlands-based colleagues. While decision making and implementation for this strategy occurs in the UK, we are able to benefit from the research and insights from across our Global Fixed Income platform.

The proposed product is primarily a sterling focused investment grade corporate bond strategy. The strategy does not invest in other asset classes, such as equities, or take active currency positions.
We blend our strong bottom-up credit selection capabilities with top-down views and credit risk positioning to generate strong risk-adjusted returns to outperform through market cycles.

 

Position Sizing

Our position sizes ensure that overall bottom-up stock ideas make a meaningful contribution to our strategy’s performance.

The formal, regulatory sizing restrictions (relating to the UCITS fund within the strategy) limit the strategy to holding a maximum of 10% in a single non-government issuer, while all exposures over 5% cannot in aggregate exceed 40%.

While there are no formal limits beyond what can be inferred from the regulatory holding size limits, we would typically seek to hold between 120 and 160 holdings in this strategy. Practically, based on our risk assessment, aggregate exposure to individual companies typically ranges between 0.5% and 2.0% of the strategy (although high quality debt positions can be larger in size).

 

Idea generation

The core of our idea generation process involves bottom-up in-depth business analysis of individual companies and is the prime responsibility of our global credit research team.

In order to research ideas, we use our proprietary Quadrant Analysis Framework. This is the cornerstone of our research process and forms the basis of both our credit and rates analysis. The team analyses opportunities and risks under four principal headings: Fundamentals, Valuations, Technicals and Sentiment.

Each analyst seeks out opportunities in their area and will research an investment’s risk and reward prospects before sharing their views with the portfolio management group.
We use these four quadrants to assess all opportunities and combine to give an overall recommendation. This framework ensures research is carried out and documented consistently.

 

Credit research and ESG integration

Within our active fixed income portfolios, we focus on the sustainability of cash flows. This ultimately drives the ability of the companies in which we invest in to pay coupons, repay at maturity, and drive total returns.

Integration of ESG factors into the investment process first occurs as part of the fundamental credit research analysis for issuers. Our credit research analysts integrate ESG information into their analysis by evaluating data from various third-party sources in combination with our internal research to assign credits into a proprietary ESG category.

Although ESG factors are identified and assessed individually, we take a holistic approach to integrating ESG-specific factors along with more traditional credit analysis to understand the overall credit profile and how it affects the investment opportunity as a whole.

 

ESG integration typically includes four key steps.

  • Identification. Research analysts identify important ESG and non-ESG factors specific to the company and the industry they operate within.
  • Assessment. Research analysts assess if each factor materially affects the issuer’s fundamentals.
  • Incorporation. Research analysts incorporate the fundamental impact into the credit assessment and their credit recommendation to support a discussion with portfolio managers.
  • Integration. Portfolio managers integrate analysts’ recommendations, including ESG factors, into the portfolio construction process as appropriate to the client’s mandate.


The credit research team’s proprietary analysis incorporates qualitative and quantitative elements in an effort to determine and assess the potential materiality of the ESG issues and the impact on an issuer’s credit fundamentals. Focus is given to the potential economic impact ESG issues may have on the issuer’s ability and willingness to meet debt obligations. Materiality of ESG factors is ultimately defined according to the team’s proprietary ESG categories. An ESG category is assigned to each issuer based on the analyst’s determination of the materiality of ESG factors.

The framework is based on a 1-5 ESG categorisation with 1 being the highest category (lowest ESG risks) and 5 being the lowest category for those companies which carry the greatest ESG related risks. The ESG assessment and assigned category are incorporated into a research ‘tearsheet’ and recorded in our Bloomberg research database to be accessed by the portfolio managers. Climate related risks are also included within our ESG analysis through the ‘Environmental’ assessment, with a clear focus on the sectors deemed as higher risk sectors (energy, utilities, transport, industrials, and to a lesser degree banks and insurance). The assessment particularly focuses on the carbon transition and related risks, looking inter alia into physical risks, stranded assets assessment as well as political and regulatory risks. Collaboration and interaction between the credit analysts, portfolio managers and RI team is ongoing and formalised through monthly tri-partite meetings as a forum for discussion on key ESG themes, risks and opportunities and engagement.

 

Selection of ESG labelled bonds

The fund can also make selective investments in ESG labelled bonds through individual selection of green, social, sustainability bonds, issued to fund projects that have positive environmental, climate and social benefits. We continue to increase the fund’s exposure to ESG-labelled bonds issued to fund projects that have positive environmental, climate and social benefits with proceeds earmarked for specific projects. This is a market that can be vulnerable to ‘greenwashing’ and requires experienced, specialist resources to consider each opportunity and the potential risks. We draw on the expertise of our responsible investment team to analyse objectives and understand how robust the ring-fencing is for ESG projects.

 

Investments in sustainable themes

Through our bottom-up stock selection process, we can invest in bonds from a wide range of issuers and sectors, including investments in sustainable themes such as climate change, identifying those companies who are reducing polluting emissions through insight and innovation; eco solutions - products and services that help to protect and improve the ecosystem of our planet; and inclusive themes like companies who are addressing inequality and helping to solve demographic challenges (e.g., social housing).

Whilst the fund does not have an explicit objective around these types of investments, we map them to the sustainable themes common to our range of sustainable products. The outcome is that the c50-70% of Aegon Ethical Corporate Bond Fund holdings can be mapped to our sustainable investment pillars.

 

External Research

An independent view of the issuer’s or security’s credit fundamentals provides valuable insight into understanding the risk/reward decision. In developing this view, the firm’s research analysts use a wide range of internal and external inputs. However, the firm considers proprietary internal research to be more important when evaluating credit fundamentals.

Our credit research team conducts proprietary research on companies owned across the various credit-related composites. The process may incorporate external research sources including market and financial data, rating agencies, ESG specialists, covenant and distressed experts, macroeconomic data providers, research from sell side firms, company filings, news providers and aggregators and industry publications which are considered while conducting this analysis to help ensure analysts have a comprehensive view of the issuer as well as understanding the market perspective.

External sources of information for the firm’s research teams may include:

  •  Market and financial data: Bloomberg® and Capital IQ
  • Ratings: Standard & Poor’s® and Moody’s®
  • ESG providers: MSCI ESG Research and Sustainalytics
  • Covenant and distressed experts: Xtract Research and Reorg Research
  • Macroeconomic content providers: Piper Sandler, Cornerstone Macro and Peterson Institute
  • Sell side research firms
  • Industry publications
  • Company filings
  • News providers and aggregators


Interaction with credit issuers is also a valuable input to the analytical process. While it is important to acknowledge the inherent bias of such discussions, the information provided gives insight into the quality of the issuer company management team, their ability to deliver sustainable results and the overall strategy for the business. These meetings may occur virtually or in person.


Challenge

By consistently applying our Quadrant Analysis Framework, the team can easily compare and challenge the investment views and recommendations. We have a series of strategy meetings including weekly fixed income meeting, our formal monthly top down and asset allocation strategy meetings and moving from a top-down focus to bottom-up we have twice weekly trade ideas meetings and research/asset class meetings between the analysts and portfolio managers to review new ideas and monitor/review existing holdings. Each specialist presents their recommendations including the reasons supporting their decisions and the risks to their recommended view. The team challenges and tests these views to craft a holistic investment strategy and ensure the robustness of stock selection ideas.


Implementation

Once the team’s strategy is agreed, everyone is required to implement the strategy according to their portfolio’s specific requirements. The portfolio managers assess the suitability of each element of the strategy for their portfolio and liaise with the relevant specialist focusing on position sizing, impact of existing positions and liquidity needs. Portfolio managers cannot position their portfolio contrary to the team’s strategy. It may be that an idea is best expressed using different issuers, maturities or bonds depending on each portfolio’s risk appetite and return profile.


Review

We have regular meetings to review our strategy. Alongside the monthly strategy weeks, there are weekly meetings where the whole team or groups of specialists review the overarching strategy from a top-down and bottom-up focus. We also have shorter daily morning meetings, where everyone highlights important news flow or trade ideas as they arise.

Aside from these scheduled meetings, our investment professionals are responsible for continuous and thorough monitoring of their portfolios and outstanding trade recommendations. When an investment view changes, the team works together to implement the changed view quickly and effectively.

On a monthly basis the portfolio managers, analysts and the RI team meet to review ESG related matters, challenge ESG views and explore key ESG themes and material ESG risks for portfolios. We regularly screen our fixed income holdings against third-party ESG ratings - these outputs are then reviewed and discussed. For dedicated ESG mandates, this is part of the ongoing reporting for portfolio managers and for client reporting.

We have a dedicated chat room for trade ideas. Portfolio managers will bring to the whole team’s attention recent news, views or information. Additionally, if a portfolio manager receives a noticeable market bid or offer, that price will be made available to all of the portfolios. If a trade is executed, it will be implemented across portfolios that need to change risk positions or pro-rata.

Resources, Affiliations & Corporate Strategies

Our dedicated responsible investment team serves as a company-wide, global resource for responsible investment practices. Team members lend their expertise to ESG integration initiatives, contribute to responsible investment product development and lead active ownership and sustainability research activities to promote understanding of ESG issues. Furthermore, the responsible investment specialists serve a central resource for responsible investment education and best practices.

As of December 31, 2022, the responsible investment (RI) team consists of 19 professionals (1)

 

Primary duties of the responsible investment team

RI solutions and ESG integration

  • • Conduct sustainability research underpinning sustainability-themed solutions
  • Support research analysts with ESG integration
  • Advise on industry best practices
  • Evaluate ESG training opportunities
  • Evaluate external ESG research

Engagement and voting

  • Engage with issuers on behalf of most of our investment platforms
  • Encourage change in an effort to generate long-term economic value and reduce risk
  • Seek compliance with client ESG requirements and demands
  • Partner with other investors where appropriate

Advisory and reporting

  • Help develop, enhance and implement clients’ RI policies
  • Monitor ESG/RI policy and regulatory developments
  • Produce RI reports and advise on client ESG reporting
  • Coordinate and complete relevant external assessments of Aegon AM’s RI capabilities

 

(1) Personnel may be employed by any of the Aegon AM affiliates.

 

One or more Aegon Asset Management affiliates endorse the most common international guidelines and business principles and actively subscribes to them when possible. Examples include:

  • Climate Action 100: In 2017, Aegon AM joined Climate Action 100+. Climate Action 100+ is an investor initiative aimed at ensuring the world’s largest greenhouse emitters take necessary action on climate change.
  • Net Zero Asset Managers Initiative: In November 2021, Aegon AM became a signatory to the Net Zero Asset Managers Initiative. As part of this initiative, we will continue to collaborate with clients on their decarbonization objectives and continue to engage with companies to encourage greenhouse gas measurement, targets and reduction.
  • United Nations Principles for Responsible Investment (PRI): Aegon AM has been a signatory to the UN-supported PRI since February 2011. As a member, we commit to upholding the six principles for responsible investment and reporting annually on our progress. The PRI, an UN-supported network of investors, works to promote sustainable investment through the incorporation of environmental, social and governance issues into investment and ownership decisions.
  • Regional Corporate Governance Codes – Aegon AM complies with local corporate governance codes and best practices. For example, Aegon AM UK is a signatory to the UK Stewardship Code. Aegon AM is also a member of Eumedion, an independent foundation whose objective it is to maintain and further develop good corporate governance in asset owners and asset managers established in the Netherlands.

Aegon AM also has extensive experience managing client mandates to adhere to specific international standards and policies. Examples of such standards include UN Global Compact principles, UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. Further, through our active ownership activities, we engage with companies to encourage adoption of relevant standards and guidelines. Finally, we also comply with applicable local sustainable finance regulations such as the Sustainable Finance Disclosure Regulation (SFDR) in the EU.

Next to incorporating international guidelines and business principles into our investment processes in alignment with clients’ expectations, Aegon Asset Management interacts with various collaborative investor initiatives. A full overview can be found in the Aegon AM Responsible Investment Report.

 

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