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JPMAM launches ESG bond fund in Singapore

JP Morgan Asset Management (JPMAM) has registered its Global Bond Opportunities Sustainable Fund for sale to retail investors in the Lion City.

The Luxembourg-domiciled Ucits fund invests in sustainable debt securities which JPMAM believes are issued by companies and countries that show effective governance and superior management of environmental and social issues, the firm said in a statement this week.

The timing of the registration in the Lion City was precipitated in part by the Monetary Authority of Singapore’s (MAS) recently proposed environment risk management guidelines, which include encouraging asset managers to incorporate environmental considerations into their product offerings, introduce processes to manage and disclose environmental risks.

“Coupled with MAS guidelines, there has been an increasing awareness of sustainable investing, and hence many of our key distributors have been focusing on sustainable investing/ESG as a theme, similar to trends witnessed globally,” Sherene Ban, JPMAM’s Singapore and South East Asia CEO, told FSA.

“There has been a general perception among retail clients that sustainable funds imply sacrificing returns, but our Global Bond Opportunities Sustainable Fund has not compromised on performance, especially during the sell-off in March, which has re-assured many of them,” she added.

The $623m fund was first launched in Europe last November and has since earned a 5.24% return, compared with an average return of 4.03% by global fixed income products available in Singapore, according to FE Fundinfo.

Although the nominally unconstrained fund has underperformed its benchmark, the Bloomberg Barclays Multiverse Hedged (EUR), which is up 12.38% during the period, it is more stable with an annualised volatility of 7.80%, compared with 13.47% for the index, FE Fundinfo data shows.

The fund has an average yield of 2.5% and a duration of 5.2 years, and comprises a 65% weighting to investment grade credits. Although 49% is allocated to corporate bonds, most of the portfolio’s top 10 individual holdings are sovereign or state-backed credits, including Sweden and Australia, but also China, Indonesia and Cyprus.

The fund has six co-managers and although it is JPMAM’s first publicly available product with an explicit ESG mandate, “100% of its global fixed income AUM are ESG integrated”, according to the firm.

Bond selection combines “norms- and values-based exclusions and a deliberate positioning to securities issued by companies and countries that meet the fund managers’ ESG criteria,” said Travis Spence, fixed income investment specialist at JPMAM.

“In the bond market, investors started by first focusing on the integration of ESG factors into investment decision making, in order to ensure that material risks to cash flows were being considered,” he said.

“The market has now moved towards a dual focus on selective exclusions to help ensure portfolios match investor values as well as concentrating on securities that demonstrate superior sustainable characteristics,” he added.

JP Morgan Global Bond Opportunities Sustainable Fund: Characteristics

Source: Fund factsheet, 31 August 2020

ESG preferences

Worldwide investment into sustainable funds of all asset classes rose sharply in the second quarter of this year, according to Morningstar, with inflows of $71.1bn, up 72% compared with the first three months of the year.

Demand may further intensify in the wake of Covid-19, which has focused investor attention on the impact that ESG factors have on long-term returns, said Ban.

Indeed, a recent survey of asset managers in the country by the Investment Management Association of Singapore (IMAS) found that two-thirds of respondents believe the Covid-19 pandemic will increase the embracing of ESG investments, and only 4% thought ESG adoption would slow down.

But the IMAS survey found that equities were by far considered the asset class that would attract the most ESG-related flows, receiving 76% of votes, with fixed income very much a minority interest (4%).

In fact, ESG bond funds are not new to Singapore. For instance, Blackrock launched four fixed income products with explicit ESG themes as long ago as November 2018. Last month, Manulife Investment Management also filed an application with the MAS to launch a sustainable Asia-focused bond fund.

Spence believes that there is “a surge of bond interest in sustainability” and climate change, and that an assessment of the ESG practices of the bond issuers will be a driver of performance over the long-term.

He highlighted green bond issuance, which he expects to reach around $1trn in the next two years, from about $500bn currently.

Green bond issuance in Asia-Pacific alone hit record levels in 2019, raising $18.9bn (a 29% year-on-year increase), with mainland China’s green bond market accounting for $8.1bn, according to the Hong Kong Information Services Department.

However, a joint study by Oxfam Hong Kong and Carbon Care Asia in August, found that only a quarter of green bond issuers in the region provide details about their own environmental impact.

JP Morgan Global Bond Opportunities Sustainable Fund vs benchmark and sector average

Source: FE Fundinfo. Data in US dollars.

Part of the Mark Allen Group.