The Sustainable Fixed Income investment team investment approach is one of full integration. Each member of the team is an investment analyst or investment manager with responsibility for all aspects of traditional and ESG investment relating to the companies they cover. Coverage is divided by iBoxx sectors. Each analyst/manager is responsible for monitoring the major trends of their sector(s), identifying investment opportunities, assessing the ESG performance of those opportunities, integrating that information into traditional fundamental credit analysis to deliver recommendations for the funds, as well as engaging with these companies. The team works closely with the Equity analysts and managers where companies are covered across both asset classes.
Their main focus is always on superior investment performance and following their investment principles. In a fast changing world, they believe the companies that will survive and thrive are those that focus on improving people's quality of life, be it through medical, technological or educational advances on driving efficiency in the use of our increasingly scarce resources and on building resilient, prosperous and stable societies.
Identifying emerging trends and long-term themes is the cornerstone of their process. From the development of personalised medicine to the transition to lower carbon fossil fuels, they are fascinated by the large scale growth trends that are changing the world and by the opportunities they create.
The team look closely at companies in terms of their resilience, responsiveness and understanding of the world around them, actively seeking out those that understand and manage their environmental and social impacts as they believe they will deliver stability and lower risk for bondholders. When they do decide to invest, it's in high quality businesses with an attractive valuation, robust business fundamentals and strong management teams.
Ultimately we look for adaptors and innovators that, through their core products and the way they manage their operations, are capitalising on change, accessing new opportunities and outperforming their competitors. We invest in progressive companies that are creating real and lasting value for investors and society, both now and in the future.
The Sustainable Investment team use a Sustainability Matrix to determine the eligibility of a company for inclusion in their funds. Their screening criteria are incorporated into the Sustainability Matrix rating for a company. The Sustainability Matrix helps to analyse how sustainable and responsible a company is. They analyse the product sustainability and management quality of each investee company in which screening and thematic ESG incorporation are also factored in. Product sustainability (rated from A to E): Assesses the extent to which a company's core business (the products or services it offers) helps or harms society and/or the environment. An 'A' rating indicates a company whose products or services contribute to sustainable development (e.g. renewable energy); an 'E' rating indicates a company whose core business is in a conflict with sustainable development (e.g. tobacco). Management quality (rated from 1 to 5): Assesses whether a company has appropriate structures, policies and practices in place for managing its environmental, social and governance risks/impacts. Management quality in relation to the risks and opportunities represented by potentially material social, environmental and governance issues are graded from 1 (excellent) to 5 (very poor). Companies need to be categorised C3 or higher in order to gain access to our Sustainable Future Corporate Bond Fund, whilst anything rated D3 and above is eligible for the Monthly Income Bond Fund (Institutional clients with segregated funds are able to tailor the Matrix cut-off according to their own thresholds). To help with the rating process, their analysts maintain a set of guidelines that provide further guidance on what influences how they rate companies using their sustainability matrix for each sector. The sector guidelines also highlight the potentially material environmental, social and governance issues that they expect management to be addressing and provide an indication of what we consider to be good practice. The Sustainability Matrix rating of the company is integrated into the fundamental analysis of the investee company.
The teams’ research has identified 20 areas of long-term growth within our economies. They believe that companies exposed to their themes (More efficient; Safer and more resilient; Healthier and with higher quality of life) tend to be better managed, exhibiting greater stability and lower risk, which they believe are key drivers of long term bond returns.
Improving the efficiency of energy use; Increasing electricity from renewable sources; Improving management of water; Improving industrial processes and food production; Increasing waste treatment and recycling; Making transport more efficient.
Safer and more resilient
Enhancing digital security; Assuring better supply chains; Improving auto safety; Leading ESG management; Saving for the future; Insuring a sustainable economy; Increasing financial resilience.
Healthier and with higher quality of life
Providing affordable healthcare; Enabling innovation in healthcare; Building better cities; Providing education; Enabling healthier lifestyles; Connecting people; Delivering healthier foods.
Liontrust’s Global Fixed Income team consider ESG-related risks as part of their bottom up investment process, but do not screen, filter or engage with individual companies on ESG factors. For credit decision-making, they use their PRISM research template. The ‘S’ in PRISM stands for ‘Sustainability’ and the ‘M’ stands for ‘Motivations’. In these sections, they explore how ESG-related risks might impact the credit quality of individual borrowers. This assist to form a view around the risk versus reward characteristics of the individual investment. They believe the priorities within their PRISM template, gives something of a quality bias. For example, they prefer listed over non-listed business due, in part, to greater likelihood of transparency and better governance standards.
Their investment process is available at https://www.liontrust.co.uk/-/media/LionTrust/files/fund-literature/process-documents/global-fixed-income-process.ashx?la=en&hash=92A074CE00E11A4C6AB1A3D88F7CB59D44FF071A