An ESG integrated approach to buy and maintain credit investing

Authors
Fabien Collado, CFA Credit Portfolio Manager, AXA IM
Damien Maisonniac, CFA Credit Portfolio Manager, AXA IM
Insight
PDF 1.3MB
11 January 2016

An ESG integrated approach to buy and maintain credit investing

  • Over the past several years, both Smart Beta strategies and responsible investment (RI) have garnered increasing attention from investors across the globe – first in the equity space, now in the credit space. Though seemingly unrelated, both trends signal a move by investors away from unintentional and often uncompensated risks associated with traditional index-tracking strategies. Investors are also increasingly recognising the importance of environmental, social and governance (ESG) factors in creating long-term value. In this paper, we intend to demonstrate that a ‘Buy and Maintain’ Smart Beta credit portfolio which incorporates ESG factors is not only compatible in terms of portfolio characteristics and results, but also that the two approaches are mutually reinforcing: the introduction of ESG criteria aims to reduce issuerspecific credit risk within a Buy and Maintain portfolio, while the Smart Beta approach addresses the biases of traditional ESG fixed income strategies. An ESG Smart Beta credit portfolio can potentially offer investors the desired portfolio characteristics – higher returns than the index with improved diversification –together with strong ESG performance.

  • In this paper, we intend to demonstrate that a ‘Buy and Maintain’ Smart Beta credit portfolio which incorporates ESG factors is not only compatible in terms of portfolio characteristics and results, but also that the two approaches are mutually reinforcing: the introduction of ESG criteria aims to reduce issuerspecific credit risk within a Buy and Maintain portfolio, while the Smart Beta approach addresses the biases of traditional ESG fixed income strategies.

  • An ESG Smart Beta credit portfolio can potentially offer investors the desired portfolio characteristics – higher returns than the index with improved diversification –together with strong ESG performance.

Source: AXA IM, all information as at 31/08/2015, unless otherwise stated. Past performance is not a guide to future performance

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