Fund Name | SRI Style | Product | Region | Asset Type | Launch Date | |
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Aegon AM Ethical Corporate Bond (Scot Eq/Aegon) | Ethical | Life | UK | Fixed Interest | 15/01/2007 | |
As at: 30/09/22 Contact: mark.ferguson@aegonam.com |
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OverviewThis Life 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:
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FiltersFund informationSustainabilityLimits exposure to carbon intensive industries Favours cleaner, greener companies Sustainability focus Encourage more sustainable practices through stewardship Nature & BiodiversityUnsustainable / illegal deforestation exclusion policy Avoids genetically modified seeds/crop production Genetic engineering exclusion Climate Change & EnergyNuclear 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 InvestmentsInvests > 5% in green bonds Invests > 5% in sustainable bonds Invests > 50% in green bonds Human RightsChild labour exclusion Oppressive regimes (not free or democratic) exclusion policy Modern slavery exclusion policy Meeting Peoples' Basic NeedsInvests > 5% in social housing Invests > 50% in social housing Ethical Values Led ExclusionsEthical policies Animal welfare policy Animal testing exclusion policy Tobacco and related product manufacturers excluded Armaments manufacturers avoided Alcohol production excluded Gambling avoidance policy Pornography avoidance policy Gilts / government bonds - exclude some Civilian firearms production exclusion Banking & FinancialsPredatory lending exclusion Exclude banks with significant fossil fuel investments Governance & ManagementGovernance policy Avoids companies with poor governance Encourage board diversity e.g. gender Encourage higher ESG standards through stewardship activity Fund GovernanceESG integration strategy Asset Size & MetricsOver 50% small / mid cap companies Invests in small, mid and large cap companies Invest in supranationals How The Fund WorksStrictly 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 MethodologiesInvests in environmental solutions companies Invests in social solutions companies Invests in sustainability / ESG disruptors Aim to deliver positive impacts through engagement Labels & AccreditationsRSMR rated (OEIC funds only) Intended Clients & Product OptionsFaith friendly Intended for investors interested in 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 informationAbout The BusinessESG / SRI engagement (AFM company wide) Responsible ownership / stewardship policy or strategy (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) ResourcesIn-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 & AffiliationsPRI signatory UKSIF member Climate Action 100+ or IIGCC member Fund EcoMarket partner Investment Association (IA) member AccreditationsUK Stewardship Code signatory (AFM company wide) Engagement ApproachRegularly 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 TransitionEncourage 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) TransparencyFull SRI policy information on company website Full SRI policy information available on request |
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PolicyWe 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:
Military:
Nuclear power:
Environment:
Political donations
Genetic engineering
Gambling
Alcohol
Tobacco
Pornography
Banks
Oppressive regimes
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ProcessBefore 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.
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.
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.
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:
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.
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.
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. |
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Resources, Affiliations & Corporate StrategiesOur 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
Engagement and voting
Advisory and reporting
(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:
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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LiteratureDisclaimer 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.
Last amended: 09/06/23 06:11 |
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04/29/2024