ESG principles are ingrained in how our Australian Fixed Income analysts invest and are a mainstream part of the ongoing research process.
The fundamental research framework is used to carry out in-depth analysis, focusing on the “Key Drivers” of an issuer. These are essentially the 3 to 5 key factors that are expected to determine whether a security/sector will outperform or underperform.
All authorised investments of the portfolio must pass a thorough credit selection process to screen out investments that present an unacceptable credit, sector or liquidity risk to the fund’s portfolio and future performance. On a daily basis, credit analysts liaise with company management, external analysts, other stakeholders and the broader YCM investment team to identify trends and changes in outlook.
The credit risk model actively incorporates four key factors to create individuals scores, which are then weighted, to create an overall internal credit rating:
Financial profile - 20-30%
Business profile - 15-30%
Environmental, Social and Governance (ESG) profile - 15-30%
Market profile - 20-30%.
After completing the necessary credit work, a relative value framework determines the attractiveness or otherwise of new and existing investments, taking into account all aspects of market pricing, demand/supply dynamics and risk parameters.