28 March 2018
Just 12 months after its launch, the Lombard Odier Global Climate Bond Fund – managed by Affirmative Investment Management (AIM) – has much to celebrate.
Between 1 March 2017 and the end of February, it returned 7.39%, compared with 7.01% for the Bloomberg Barclays Global Aggregate index and has grown to more than $300 million from an initially expected $200 million. Further investments are expected this year, says Stuart Kinnersley, CEO of AIM.
Carolina Minio-Paluello, global head of sales and solutions at Lombard Odier Investment Managers (LOIM), described the launch as "one of [our] most successful asset raises."
The fund is the fruit of a strategic partnership between LOIM and AIM and targets bonds "that provide positive climate-related outcomes." This includes opportunities in climate change adaption and in developing countries.
The managers aim to create a diversified, investment-grade portfolio based mainly on 'labelled' green bonds. However, they also buy 'pure-play' bonds, 'climate-aligned' bonds and a small volume of social/sustainability bonds. The selection process is based on AIM's in-house criteria, which include the sustainability performance of issuers.
As the green bond market swelled during 2017 and the fund increased in size, so the number of investments in the portfolio has risen from about 35 to more than 60.
"We've been very active in the new-issue market," says Kinnersley, but the fund also buys in the secondary market when it sees value opportunities. "We're looking to generate alpha over the benchmark," but with greater environmental impact and higher yield than a typical investment grade portfolio, Kinnersley explains.
Just over a third of the fund's holdings has a AAA credit rating, with 23% rated AA and 29% A. The average maturity is just over six years and the average yield to maturity is 2.49%.
Corporate issues represent 44% of the portfolio, with bonds from government agencies accounting for about 38% and municipal/provincial bonds about 16%.
|Top 5 Holdings|
|ISSUER||COUPON||MATURITY||COUNTRY||% OF FUND|
|Kommunalbanken As 2.125%||2.125%||(11/2/2025)||Norway||6.2%|
|Nederland Water Bank||2.375%||(24/3/2026)||Netherlands||5.7%|
|Province of Ontario 2.65%||2.65%||(5/2/2025)||Canada||4.2%|
|Transport for London||2.125%||(24/4/2025)||UK||4.1%|