US fund group BNY Mellon, has launched an absolute return sustainable bond fund targeting companies with “no material unresolvable ESG issues”.
The Sustainable Global Dynamic Bond Fund will be run by Paul Brain, the head of fixed income at BNY’s investment arm Newton Investment Management and is the fifth UK-domiciled sustainable fund launched by Newton.
A sustainable version of Newton’s existing Global Dynamic Bond strategy, the fund will invest in sustainable government bonds, and bonds issued by companies with sustainable business practices.
It will avoid bonds with material unresolvable ESG risks likely to negatively affect future performance, as well as company bonds issued by firms that derive more than 10% of its turnover from the production and sale of tobacco.
The fund has an absolute-return strategy, and will follow an unconstrained, dynamic asset-allocation approach. It also has the flexibility to use stabilising assets and hedging positions to provide downside protection.
Brain will target a return of 2% above one-month Libor over five years before fees and aims for a positive return over rolling three-year periods.
This fund follows BNY Mellon Sustainable Global Equity, Sustainable Real Return, Sustainable Sterling Bond and Sustainable Global Equity Income funds.
Newton, which has £4.7bn sustainable and ethical assets under management, runs seven sustainable strategies across the UK-domiciled BNY Mellon funds range and Dublin-domiciled BNY funds range.
“ESG factors have already been proven to have a material benefit on a company’s financial profile and we believe in-depth analysis of ESG factors, alongside issuer engagement where appropriate, can help to enhance long-term investment opportunities in this growing sector,” Brain said.
“The assessment of ESG factors within credit analysis enhances risk mitigation, which is particularly important given the asymmetric nature of bond returns,” Brain added.