The importance of ESG in credit analysis

ESG Integration, Global Credit, Fixed Income


In this article, we address ways in which ESG factors are increasingly important in evaluating corporate issuers in light of the impacts of the pandemic on markets, companies, investors, customers and the economy. Key points in our discussion include:

º Current downgrade and fallen angel volumes are at high historical levels and we expect such rating migrations to continue through the full year

º Assessing credit opportunities in the midst of the crisis today needs to incorporate how companies manage their environmental, social and governance risks

º Views on constructing a credit portfolio today in the midst of a systemic shock

Read full article

Mid-Year Liquidity Investment Outlook

Fixed Income, Liquidity, Macroeconomic, Multi Asset, Outlook, Equity


Mid-Year Liquidity Investment Outlook The trend accelerator

The first half of 2020 saw a global liquidity event in money markets. There was a sharp widening of the spread between three-month Libor and the overnight swap rate, a metric many investors monitor. While spreads have since narrowed, stresses remain. The differing actions taken by major central banks have had an impact on how money markets have behaved.

Our response has been to build short-term liquidity in our funds by increasing the amount of assets maturing overnight and within one week. The crisis has also shown our concentration policies to be effective tools in managing liquity risk. A five per cent maximum rule for individual clients proved its worth, while we learned from previous crises which clients are more prone to redeem.

Credit risk and the preservation of capital is just as important to money market investors. Therefore, another focus is minimising the risk of credit rating migration below the minimum rating level required, which could force us to become sellers. We cannot ignore market risk either, given the spectre of ultra-low (and in more cases, negative) interest rates for the foreseeable future.

Read full article

Multi-asset style factors: when should they outperform?

Alternative Risk Premia, Multi-Asset Style Factors


In this paper, we analyze the performance of three style factors--Carry, Value and Momentum--across time and across different market regimes to address four main questions.

  • How do style factors behave in different phases of the equity market cycle?
  • How sensitive are style factors to volatility conditions?
  • How do style factors respond to changes in interest rates?
  • Any there style factors that are structurally more cyclical or defensive?

Read full article

Roads to a low carbon transition

Low Carbon Economy, Responsible Investment


In this paper we examine 10 climate-related scenario models to draw conclusions about company-level valuations. These 10 scenarios are based on two main drivers of the low carbon transition: 1) climate policy and regulation; and 2) cost and performance of the technologies designed to reduce emissions. In our analysis, we identify the common characteristics of relative "climate winners" and "climate losers" across all scenarios.

Read full article

Insurance investing in a low-forever world



In this paper we look into the possible drivers for a low-forever interest rate environment and the impact on the balance sheet and business model for insurers. We then discuss three investment related dimensions along which insurers can make adjustments in order to succeed in such an economic environment.

Read full article

Oil market risks in the spotlight


With heightened US-Iran tensions, Brent crude prices have risen by about 3% to just above $68bbl since January 2, 2020. Perceived safe-haven assets have also rallied with gold prices edging up to levels last seen in 2013. However, prices are still within 2019's $55 - $75 range and equity markets have proven relatively resilient.

Read full article

Investment Outlook 2020: the Age of Uncertainty



2019 has been a year of contrast. On one hand, the narrative of the year in financial markets has been rather pessimistic; trade tensions, policy uncertainty, and recession worries have dominated the news headlines. On the other hand, investment market performance has been impressively strong — right across Fixed Income, Equities, and alternative assets. How the "age of uncertainty" dynamic developed in 2019, and why it still resulted in strong investment market returns, are the first questions we deal with in our Investment Outlook.

Read full article