GAM launches sustainable local emerging bond strategy
GAM Investments has launched a sustainable local emerging market bond strategy. The new investment approach was developed in close partnership with VBV-Pensionskasse, a leading pension fund for sustainable investments in Austria.
Due to a longstanding existing partnership with GAM in this asset class, VBV has moved a three-digit million investment into the new sustainable solution. The strategy will be managed by GAM’s emerging markets debt team and is the first in a range of sustainable investment strategies the firm plans to launch in 2021.
The new strategy draws upon the expertise of Paul McNamara and GAM’s highly experienced emerging markets debt team, whose differentiated, conviction-driven approach to EM debt investing has been developed over 20 years. The strategy seeks to generate long-term financial returns by investing in a way that is sensitive to the impact decision making may have on society and the environment.
The approach combines a positive tilt towards sovereigns with higher environmental, social and governance (ESG) scores, as defined by its benchmark, the JP Morgan ESG GBI-EM GD Index, with the team’s proprietary investment process incorporating ESG factors for active allocation within the index tilts. The JP Morgan ESG GBI-EM GD Index leverages research from both Sustainalytics and RepRisk therefore allowing investors to combine the benefits offered by active management applied to an ESG benchmark.
The team’s process mirrors that of the long-running local emerging bond strategy. Based on its assessment of developments in the ‘Big 3’ global economies – the US, Europe and China – the team establishes three to five top-down global themes, which determine country selection, along with specific return and risk driver preferences. Given the team’s emphasis on crisis avoidance, country analysis is then performed using the team’s proprietary ‘Crisis Cycle Filter’ (see notes to editors). This captures the interaction between core ESG factors and nine traditional macroeconomic variables considered to be highly reliable, early indicators of financial crises, such as falling FX reserves or rapidly rising inflation.
The strategy typically has active exposure to 15-25 emerging and frontier markets, centred upon approximately 10 very liquid core markets and 100-150 bonds and FX forwards.
Paul McNamara, Investment Director for emerging market debt at GAM, says: “We have taken ESG factors into account in our investment process for our local emerging bond strategy for a number of years, purely for their impact on risk-adjusted returns. However, as ESG factors become more efficiently priced in the sovereign debt market, we believe that now is the time for a strategy that targets both a specific ESG tilt and integrates ESG factors from a risk/return perspective.”
Günther Schiendl, Member of the Executive Board of VBV-Pensionskasse, says: “VBV-Pensionskasse invests responsibly, sustainably and with a focus on performance. Particularly in the area of fixed-income emerging markets, a new approach that increasingly takes ESG criteria into account was important to us, as this type of solution has been rare so far.”
Stephanie Maier, Global Head of Sustainable and Impact Investment at GAM, says: “At GAM, we are listening to the clear client demand for more strategies focused on sustainable investing and are delighted to be working in partnership with our clients to develop these. The sustainable local emerging bond strategy combines the benefits of using a well-established ESG benchmark, with the opportunity to benefit from active management and expertise of GAM’s emerging markets bond team. Later this year, we plan to launch additional ESG focused products, further building on our award winning Swiss Sustainable Companies strategy, which has a track record of more than 20 years.”