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Manulife IM launches Asia ESG bond fund

The Canadian asset manager is offering an ESG fund focused on Asian credit to Singapore retail investors.

The Manulife Sustainable Asia Bond Fund is a Luxembourg-Ucits first launched last month that is now registered for distribution in Singapore.

The product aims to generate risk-adjusted returns by mainly investing in Asian bond issuers that “demonstrate superior sustainability attributes”, according to a statement released by the Toronto-based firm late last week. The portfolio has allocations to green, social, and sustainability bonds, and concentrates on three major long-term sustainability themes, including climate change, ageing population, and corporate governance.

“ESG bonds tend to be more resilient during a sell-off compared to straight vanilla bond as ESG bonds are typically held in ESG dedicated mandates which are more sticky. We will monitor market developments and increase our exposure gradually when more guidance materials are released from regulators so that sectors that are not traditionally seen as ESG can also issue ESG bond,” a spokeswoman told FSA.

“Looking at climate change, our analysis shows that sustainable Asian bonds have achieved similar returns to traditional Asian bonds over time, but with only one-third of carbon footprint intensity as measured in tons CO2E/$m sales, based on JPMorgan Asia Credit Indices,” she said.

The offering follows JP Morgan AM’s launch of its Global Bond Opportunities Sustainable Fund for sale to retail investors in the Lion City earlier this month, after the Monetary Authority of Singapore’s (MAS) proposed environment risk management guidelines, which include encouraging asset managers to incorporate environmental considerations into their product offerings, and introduce processes to manage and disclose environmental risks.

“Sustainability is top of mind among global investors, and…the fund is the result of our team’s years of research and successful integration of E, S, and G factors into our credit analyses, which enables us to gain a better understanding of the true worth of companies we invest in,” said Endre Pedersen, deputy global fixed income CIO and Asia ex-Japan fixed income CIO.

Manulife IM introduced a global ESG credit risk analysis tool in 2018 that aims to systematically capture ESG risks when assessing an issuer’s credit worthiness, and quantify how ESG factors affect a company’s assigned credit rating.

The investment process of the firm’s Asia fixed income desk includes a formal ESG fixed income investment committee — the Manulife Asia Credit Committee (MACC) — which aims to track the ESG integration progress across all the regional portfolios as well as a proprietary scorecard that assess key risks related to E, S, and G factors.

ESG process

The managers of the new Manulife product, who include Pedersen and four others based in Hong Kong, London and Singapore, employ a four-stage ESG investment process that combines top-down macro views and bottom-up research.

It begins with assessing the global macro environment focusing on key factors, followed by analysing and comparing a broad range of opportunities across sectors using a top-down approach and a proprietary global sovereign ESG model.

Once attractive sectors and markets are identified, the firm’s credit research team then conducts bottom-up, fundamental research within its ESG framework, as well as absolute and relative value analysis in the context of equal alternatives on ESG impact, and then conducts implementation and risk management, according to the spokeswoman.

“This process is consistent with the one used across the Asian fixed income team’s broader fixed income strategies; but the Sustainable Asia Bond fund emphasises our ESG framework for bottom-up research and risk management,” she said.

The firm has a team of around 70 fixed income investment professionals based across Asia-Pacific, who analyse about 500 Asian credit issuers.

They evaluate how ESG factors influence a company’s credit long-term profile. For instance, when assessing the “governance” aspect of ESG, the track record and reputation of a company’s founding family and owners are scrutinised by on-the-ground credit analysts who can reject issuers demonstrating poor corporate governance.

Companies that generate more than 5% of their revenue from businesses from controversial/unethical activities, such as gaming, tobacco, alcohol, controversial weapons (cluster ammunitions and landmines), and thermal coal, are excluded.

“Positive screens such as the strategy’s dedicated exposure to ESG bonds (green/social/sustainable bonds) or identifying companies with sound corporate governance are applied to credits approved by the MACC,” said the spokeswoman.

“We believe this may reward investors in the long-term by mitigating fat tail [abnormal price movement] risk,” she said.

Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. As of June 30, 2020, Manulife Investment Management had CAD$900bn ($660bn) in AUM administration, according to the statement.

Part of the Mark Allen Group.