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With growing investor appetite for sustainable investment options, Shan Kwee, Portfolio Manager in the Janus Henderson Australian Fixed Interest team, explains the different types of investments available and the complexities faced in issuing and tracking sustainable investment outcomes.
Investors are increasingly wanting their money invested in more sustainable ways that deliver better outcomes for society as well as their portfolios. Consumers are becoming more actively engaged with their environmental and social footprints, and sovereign wealth funds, superannuation funds, corporates, insurance companies and firms like Janus Henderson are increasingly seeking ways to invest responsibly and with positive impact.
We fundamentally believe that the consideration of ESG factors is vital to making sound investment decisions. This is consistent with our philosophy of pursuing “quality before price” within fixed interest strategies. We believe that clients end up with better quality portfolios and thus risk adjusted returns.
Environmental, Social and Governance (ESG) risk analysis is incorporated throughout our investment process. Our approach employs negative screens as well as positive impact tilts. We apply this approach across our investment strategies, which we believe to be best practice.
As the market evolves, we are being presented with more opportunities to incorporate assets into our portfolios that positively impact areas like social housing, climate change, women’s leadership and other UN Sustainable Development Goals (SDGs) aligned initiatives.
There are a range of different types of sustainable finance options available and below we introduce each one, discuss some of the trends we are seeing in Australia and also discuss some of the challenges that surround sustainable finance.
Four examples of holdings within the Janus Henderson Tactical Income Fund*:
National Housing Finance Investment Corporation (NHFIC) Bond:Rating: | AAA |
Maturity: | June 2032 |
Current yield: | 2.01% |
Issue spread: | 0.38% |
Current spread: | 0.18% |
Rating: | BBB+ |
Callable: | Feb 2026 |
Current yield: | 2.16% |
Issue spread: | 1.85% |
Current spread: | 1.31% |
Rating: | A- |
Maturity: | Aug 2025 |
Current yield: | 1.56% |
Issue spread: | 1.27% |
Current spread: |
0.90% |
Rating: | AAA |
Maturity: | Nov 2025 |
Yield at issue: | 0.83% |
Government yield: | 0.61% |
Spread above government: | 0.22% |
In our view, the continued growth and success of sustainable finance will be dependent on successfully navigating the following four challenges:
The ongoing issuance of green, social and sustainable bonds will be complemented by sustainability-linked issuance, which provides an additional frontier to positive impact investing. At Janus Henderson we feel we are well placed to help clients navigate the growth and evolution in bond markets. We will continue to identify investment opportunities that benefit society and the environment, where investors are also appropriately compensated and provide scope for continued alpha generation.
Given the bespoke nature of the bonds and their complexity in structuring, as active managers we have been engaging directly with CFOs and treasury teams, as well as debt origination desks at the banks to ensure our clients’ interests are appropriately considered, while seeking to promote a viable way to grow the Australian positive impact investing landscape.
*As at 12 May 2021. Any references to individual securities do not constitute a securities recommendation.
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