AXA IM launches its first low-carbon US High Yield fund

• The AXA WF US High Yield Low Carbon Bonds Fund aims to provide investors with an environmentally conscious way to invest in the US high yield market.
• The fund’s objective is to target a reduced carbon footprint and water intensity of at least 20% lower compared to that of the ICE BofA US High Yield Index.

AXA Investment Managers (AXA IM) announces the launch of the AXA WF US High Yield Low Carbon Bonds Fund, demonstrating the firm’s commitment to delivering sustainable, long-term value for clients while driving meaningful change for society and the environment.

The fully ESG-integrated fund will use a sustainable investment approach to exclude many of the most carbon intensive sectors including Metals, Mining and Steel Producers, Utilities, and most sub-sectors within Energy. In addition, the ESG scores of companies will be considered in the investment process.

As part of AXA IM’s ACT fund range¹ , the fund adheres to AXA IM’s Sectorial Exclusion Policies and ESG standards policies² which include screening measures to minimise exposure to companies with low ESG scores. ESG research and key performance indicators, including carbon and water intensity scores, will form a key part of the investment decision-making process.

Within the remaining investible universe, the carbon intensity and water intensity scores of issuers will be analysed to avoid those companies seen as excessively carbon and water intensive. This further contributes to the fund’s target for carbon and water intensity that is at least 20% lower than that of the benchmark. The fund’s asset allocations will then be driven by fundamental credit assessment and relative value analysis.

Within the overall portfolio, at least 90% of companies will have an ESG score, at least 90% will have a carbon intensity score³ , and at least 70% will have a water intensity score⁴ . The fund has the ability to invest in companies that we believe demonstrate credible plans for reducing carbon and water intensity in the future or offer products that help other businesses improve their environmental footprints. AXA IM will also leverage its ESG engagement capabilities to encourage these companies to improve their environmental impact.

The fund will form part of AXA IM’s Sustainable investing offering⁵ , a subset of the firm’s ACT range, and will be classified as Article 9 under the EU Sustainable Finance Disclosure Regulation (SFDR). It is currently registered and available to professional and retail investors in the UK, France, Austria, Belgium, Denmark, Finland, Germany, Italy, Liechtenstein, the Netherlands, Norway, Spain, Portugal, Sweden and Luxembourg.

Commenting on the launch, Carl ‘Pepper’ Whitbeck, manager of the AXA WF US High Yield Low Carbon Bonds Fund, said: “At AXA IM, we believe the global economy has entered a ‘decade of transition’ towards a more sustainable, de-carbonised model. During this transition, we believe portfolios aiming to proactively reduce carbon intensity should be better positioned to withstand non-financial risks and outperform the broad market.

“Carbon and water intensity are two widely followed ESG key performance indicators and among the most important metrics to look at when analysing the environmental impact of companies in the US high yield space. We consider the AXA WF US High Yield Low Carbon Bonds Fund to be a traditional core US high yield strategy that can be easily compared to the broader benchmark, but with a significantly lower carbon footprint to help clients meet their ESG objectives.

“Amid the ongoing hunt for yield, the improved prevalence of ESG scoring for companies in the US high yield universe in recent years has allowed for the development of low carbon US high yield portfolios. Our experience has been that avoiding high carbon intensity issuers is beneficial on both total return and volatility measures, making the new fund a strong addition to our existing US high yield offering.”

Risks

• Credit risk – If an issuer of bonds defaults on its obligation to pay income or repay capital, it may result in a decrease in portfolio value. The value of a bond (and subsequently, the portfolio) is also affected by changes in credit rating downgrades and/or market perceptions of the risk of future default. Investment grade issuers are regarded as less likely to default than issuers of high yield bonds. High-yield, lower-rated, securities involve greater risk than higher-rated securities. Portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not.
• Risk of capital loss – Any investment in our high yield strategies are not guaranteed and returns can be negative. The performance of a portfolio may not be consistent with the objectives of investors and their investment may not be fully returned.  
• Interest rate risk – Fluctuations in interest rates will change the value of bonds, impacting the value of the investment portfolio. Often, when interest rates rise, the value of the bonds fall and vice versa. The valuation of bonds will also change according to market perceptions of future movements in interest rates.
• Liquidity risk – Some investments may trade infrequently and in small volumes and the risk of low liquidity level in certain market conditions might lead to difficulties in valuing, purchasing or selling bonds.
• High yield bond risk – The portfolio will be exposed to a risk related to investments in high yield financial instruments. These instruments present higher default risks than those of the investment grade category. In case of default, the value of these instruments may decrease significantly, which would affect the value of the portfolio. Lower-rated securities generally tend to reflect short-term corporate and market developments to a greater extent than higher-rated securities which respond primarily to fluctuations in the general level of interest rates.  
• Re-investment risk – Reinvestment risk describes the risk that, as interest rates or market environment changes, the future coupons and principal from any bond may have to be reinvested in a less favorable rate environment. This is more likely to occur during periods of declining interest rates when issuers can issue bonds with lower levels of coupon. Re-investment risk may be greater with callable bonds.
• Sustainability risk – Given the Sub-Fund’s Investment Strategy and risk profile, the likely impact of the sustainability risks on the Sub-Fund’s returns is expected to be low.

Biography

Pepper is currently Head of US Fixed Income and Head of US High Yield.

Prior to his current role, Pepper was the Global Head of High Yield and US Active Fixed Income, after having been Head of US Fixed Income (beginning in 2014) and the Head of US High Yield (since 2011). He also is a Portfolio Manager in the US High Yield team, a role he has held since 2008. Prior to his Head of High Yield position, Pepper spent six years as the Head of US High Yield Research and joined AXA IM as a US High Yield Analyst in 2002. Before joining AXA IM, Pepper was an Investment Banking Analyst at Lehman Brothers where he focused on companies in the consumer and retail sectors and worked on a variety of M&A and High Yield transactions.

Pepper holds a bachelor’s degree in Economics from Williams College and is a CFA charter-holder.