UBAM - GLOBAL SUSTAINABLE CONVERTIBLE BOND
Drawing on the convex nature of convertible bonds within a responsible investment framework
The dual nature of convertible bonds – a bond instrument with an embedded conversion option – allows them to combine the defensive qualities of fixed-income securities with the upside potential of equities. This attractive feature is at the root of the asset class’ intrinsic convexity. UBAM – Global Sustainable Convertible Bond aims to provide investors with the asymmetric risk–return profile of convertible bonds within a socially responsible investment (SRI) framework.
Key points
* The combination of two areas of expertise: convertible bond management & extra-financial analysis
* A conviction-driven approach focused on companies combining strong financial value and high sustainability standards
* A cautious approach to credit risk embedded throughout the investment process
* Focus on sustainability issues with material impact on corporates’ performances, starting with climate risk
* A volatility-controlled exposure to companies with superior growth prospects in sectors exposed to attractive secular trends
* Regional diversification across the main convertible bond markets (the US, Europe, Asia)
Investment case
Convertible bonds have a long track record of delivering equity-like returns with much lower volatility and reduced drawdowns over the long term. This comes from their dual nature – a bond instrument with an embedded conversion option – which grants them an asymmetric risk–return profile relative to equities.
The benefits of convexity make convertible bonds an “all-weather” asset class as regards portfolio construction. Besides this, being partly exposed to equities, convertible bonds have lower sensitivity to interest rate movements than straight bonds of identical duration.
The outlook for the asset class is highly favourable as an increasing number of companies are turning to convertibles for their financing needs and investors are increasingly seeing them as a valid alternative to both equities and bonds.
With UBAM – Global Sustainable Convertible Bond, UBP offers access to convertible bonds’ intrinsic convexity for investors keen to expose some of their assets, through SRI, to issuers that value fairness and sustainability in investment.
Fund concept
UBAM - Global Sustainable Convertible Bond seeks to capitalise on the convex nature of convertible bonds through a balanced aggregate sensitivity to equity markets and careful analysis of the credit risk. A global allocation enables investors to benefit from a wide range of investment opportunities, including companies with superior growth prospects and exposure to attractive secular trends (e.g. technology and healthcare).
Aside from convertible bonds’ most attractive features, the strategy promotes sustainability in investment through stringent environmental, social and governance (ESG) criteria.
This leads the team to favour companies that stand out for their commitment to sustainable development, based on the assessment of four equally weighted pillars: climate risk, environmental strategy, social capital, and governance.
The combination of convexity-driven financial analysis with a stringent extra-financial assessment of the issuers aims to provide investors with enhanced convexity benefits in a sustainable framework over a complete market cycle.
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