Sustainable, Responsible &/or ESG Policy:

We apply an ethical screen at the start of our investment process, which excludes companies which undertake certain unacceptable activities from the strategy’s investment universe. The exclusions applied by the strategy are informed by our engagement with clients to understand their concerns and the experience we have gained during 30 years of managing ethical strategies.

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.

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 companies out if they engage in certain unacceptable activities.

The specific exclusions applied by the strategy are:

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 strategic products.

Nuclear power

• Own or operate nuclear facilities

Environment

• Are involved in activities which are commonly held to be environmentally unsound – specifically covering the areas of PVC, Ozone Depleting Chemicals and hazardous pesticides.
• Have been convicted of serious pollution offences or are in breach of internationally recognised conventions on biodiversity and companies in energy intensive industries which are not tackling the issue of climate change and hazardous chemicals
• are engaged in energy intensive industries which are not tackling the issue of climate change
• are engaged in coal mining and/or processing
• are engaged in oil and gas exploration and/or production

Political donations

• Have made political donations of more than 1% of 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

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

Tobacco

• Make 5% or more of their business turnover from the growing, processing or sale of tobacco products

Pornography

• Provide adult entertainment services

Banks

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

Oppressive regimes

• Operate in countries with poor Human Rights records, without established management policies on these issues with due regard to the nature of the activities that a company is undertaking

Process:

Our 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 fall 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 our short to medium-term and longer-term global macro-outlooks. Moreover, trading ranges, targets and other metrics will be discussed to ensure all managers have a strong working framework to ensure effective risk management.

Our specialists submit their research and opinions prior to the meeting. This is based on our Quadrant Analysis research framework (detailed overleaf) and ratings on each asset class, and region.

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.

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.

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.

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 shown in the table below. 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.

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 meetings, our formal monthly top down and asset allocation strategy meetings and moving from a top-down focus to bottom-up we have multiple trade ideas meetings and research/asset class meetings each week 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

Alongside our formal monthly strategy meeting, we have regular weekly meetings to review the strategy. The whole team or groups of specialists review the overarching strategy from a top-down and bottom-up focus. Multiple meetings take place each week between analysts and managers to discuss trade ideas and review fund positions. 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.