Robeco logo

Disclaimer

BY CLICKING ON “I AGREE”, I DECLARE I AM A WHOLESALE CLIENT AS DEFINED IN THE CORPORATIONS ACT 2001.

What is a Wholesale Client?
A person or entity is a “wholesale client” if they satisfy the requirements of section 761G of the Corporations Act.
This commonly includes a person or entity:

  • who holds an Australian Financial Services License

  • who has or controls at least $10 million (and may include funds held by an associate or under a trust that the person manages)

  • that is a body regulated by APRA other than a trustee of:
    (i) a superannuation fund;
    (ii) an approved deposit fund;
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme.
    within the meaning of the Superannuation Industry (Supervision) Act 1993

  • that is a body registered under the Financial Corporations Act 1974.

  • that is a trustee of:
    (i) a superannuation fund; or
    (ii) an approved deposit fund; or
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme
    within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million.

  • that is a listed entity or a related body corporate of a listed entity

  • that is an exempt public authority

  • that is a body corporate, or an unincorporated body, that:
    (i) carries on a business of investment in financial products, interests in land or other investments; and
    (ii) for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82 of the Corporations Act 2001, the terms of which provided for the funds subscribed to be invested for those purposes.

  • that is a foreign entity which, if established or incorporated in Australia, would be covered by one of the preceding paragraphs.


I Disagree

12-07-2024 · Insight

Decarbonising fixed income portfolios under Your Future Your Super

Our quant fixed income strategies offer a time-tested approach to decarbonising bond portfolios with strong risk management and attractive return potential.

Download the full analysis here


Summary

  1. A fixed income strategy that considers return, risk, and sustainability

  2. Evidence-based and forward-looking to contribute to member outcomes

  3. Based on 25 years of implementing quant fixed income solutions

Many Australian superannuation funds have made Net Zero commitments and want to decarbonise their portfolios in line with these pledges. To do so, their portfolios will need to deviate from benchmarks that do not consider climate risks. Such deviations need to be managed carefully in light of the regulatory environment. We manage portfolios with significantly lower carbon intensity while aiming to outperform benchmarks within limited risk budgets. The impact of decarbonisation on risk and return is quantified and allows for customisation along risk, return and decarbonisation objectives.

Combining our quant and sustainable investing expertise

Decarbonising fixed income portfolios means investing more in bonds from low-carbon issuers and less in bonds from high-emission issuers. This could mitigate risks, as issuers with higher emissions could face bigger challenges in the energy transition. By shifting portfolios towards countries and/or companies with lower emissions, investors can endorse issuers’ efforts to reduce emissions. However, shifting portfolio weights means deviating from market-value weighted indices. While this does not have to increase absolute risk, it introduces relative risk (i.e. tracking error). This is a relevant consideration in light of the Your Future Your Super (YFYS) framework, where performance is evaluated against market-value weighted indices described by APRA. In light of the constant need to deliver for members and given that underperformance versus indices can have major consequences for funds, we have to carefully consider the impact on risk and return when future-proofing fixed income portfolios through decarbonisation.

Table 1 - Decarbonised Enhanced Indexing fixed income strategies

Table  1 - Decarbonised Enhanced Indexing fixed income strategies

Source: Robeco. The three proposed decarbonised Enhanced Indexing strategies aim to outperform their respective sector benchmarks (after costs) across a full investment cycle with an IR target of 0.75.

Our proprietary algorithms can construct portfolios of bonds with attractive factor exposures, so with bonds that score well on factors like value, momentum, low-risk and quality. In that case, we aim to add alpha while controlling risk. As presented in Table 1 above we, more often than not, utilise the algorithm to do both: construct a portfolio of bonds with attractive factor and emissions characteristics. Our simulations show that we do not need twice the tracking error to meet both goals; actually, we can often kill two birds with one stone. The portfolio construction algorithm can evaluate way more potential portfolios than any human investor ever could. Often, it can find solutions where deviations from the benchmark contribute to both decarbonisation and increased factor exposure, hence boosting the portfolio’s expected return while mitigating emissions and controlling risk.

Download the full analysis here


Get the latest insights

Subscribe to our newsletter for investment updates and expert analysis.

Read more
Robeco

Robeco aims to enable its clients to achieve their financial and sustainability goals by providing superior investment returns and solutions.

Important information: This website is prepared and issued in Australia by Robeco Hong Kong Limited (ARBN 156 512 659) (‘Robeco’) which is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order 03/1103. Robeco is regulated by the Securities and Futures Commission under the laws of Hong Kong and those laws may differ from Australian laws. The information on this web page is provided to you because Robeco reasonably believes that you are a "wholesale client" within the meaning of that term under section 761G(4) of the Corporations Act 2001 (Cth) ("Corporations Act") and not any other class of persons. This information is not an advertisement and is not intended to induce retail clients to acquire Robeco products. Retail clients who are interested in Robeco products should contact their financial adviser.