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New sustainability funds from ASI and Morgan Stanley

17 December 2020

Morgan Stanley Investment Management (MSIM) and Aberdeen Standard Investments have both rolled out new sustainability funds to meet the growing demand for ESG investing.

The Morgan Stanley UK Sustainable Fixed Income Opportunities Fund will target risk-adjusted returns, while making a “positive contribution towards a more sustainable and inclusive world”, the global investment group said.

Its top-down selection process will focus on reducing exposure to ESG risk and negative sustainability impacts through restriction screening of sectors such as weapons, tobacco and some fossil fuels.

The portfolio will be tilted in favour of the 80% strongest sustainability performers across sovereigns and corporates by sub-sector as defined by MSIM Fixed Income’s ESG assessment methodologies.

MSIM said capital will be allocated across a wide range of income asset classes such as credit, which includes investment grade, high yield, emerging market, convertible, securitised and government bonds, both developed and emerging markets. It will also invest in green, social and other labelled sustainable bonds.

The fund, which will be managed by MSIM’s Global Fixed Income investment team, is designed to be less carbon intensive than its index and will maintain a net positive alignment with the UN’s Sustainable Development Goals.

Leon Grenyer, portfolio manager, UK Sustainable Fixed Income Opportunities Fund, said: “Our flexible approach to portfolio positioning allows us to adjust market exposure in line with the macroeconomic backdrop, as we seek to generate returns from a broad range of investment opportunities.

“We utilise an active asset allocation process across the global fixed income opportunity set, and, as we are not tied to a benchmark, our investment decisions are not restricted by geographic and sector weightings. We believe that a benchmark-orientated approach to investing in fixed income can be sub-optimal as asset allocation driven by benchmark weightings can result in exposure to parts of the market which offer lower potential returns or greater risk. As such, an active and flexible investment strategy may be a better alternative and stand to outperform.”

Navindu Katugampola, head of sustainable investing for fixed income and liquidity, Morgan Stanley Investment Management, added: “Morgan Stanley Investment Management is committed to creating products and solutions which integrate sustainability objectives in a holistic way without compromising returns. We actively seek to identify holdings with a long-term competitive advantage by relying on a process that includes ESG integration, social and environmental impact assessment, and active engagement.”

Meanwhile Aberdeen Standard Investments (ASI) unveiled the launch of its Emerging Markets Sustainable Development Equity Fund, which will invest in emerging market economies that have strong growth potential and where capital will have the greatest impact.

Fund companies will be selected upon their alignment to the UN’s Sustainable Development Goals. The 17 SDGs are designed to address long-term

challenges such as climate change, social inequality, unsustainable production and consumption.

ASI said the aim of the focused, actively managed portfolio of 30-60 stocks is to ensure that investment is “directed to the areas of greatest need.”

It marks the second fund in ASI’s sustainable development equity range, following the launch of its Asian Sustainable Development Equity Fund in August.

Fiona Manning, investment director, Aberdeen Standard Investments, said: “The UN’s Sustainable Development Goals provide an excellent framework to ensure that efforts are directed to the areas of greatest need. While some progress has been made towards achieving these goals by 2030, people in many emerging market countries are still not benefiting from growth and progress and are increasingly vulnerable to economic, social and environmental risks.”

William Scholes, investment director, Aberdeen Standard Investments, added: “We have a large research footprint in emerging markets which helps us to uncover high-quality SDG-aligned investment opportunities. By investing in these companies, the fund seeks to deliver both an attractive return and a positive societal impact where it matters most.”

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