Neil Birrell
Premier Miton’s Chief Investment Officer
In this edition of Sustainable Times, Neil Birrell, Chief Investment Officer and manager of the Diversified fund range, looks at the bond portfolio within the Premier Miton Diversified Sustainable Growth Fund and how green bonds play a key role.
Bonds are now a key element of any multi asset fund that seeks growth in our view
Since March 2022 we have been increasing the weighting to bonds across the range of Diversified funds. Looking back, that was a little early, but we were coming from a position of having little exposure to bonds and have been building the weighting incrementally.
Getting the timing exactly right when making asset allocation changes can be down to luck as much as skill and experience, so doing so over time, as opportunities present themselves is a pragmatic approach, in our view.
In essence, as bond yields have risen (and prices have fallen) through the year, the relative attractiveness of bonds has improved. It is possible to obtain better returns for less risk and the power of compound returns from bonds is becoming evident again. However, the bond market is enormous and far from homogeneous, meaning it is important to be selective. We have focussed on good quality, short dated corporate bonds and some government bond exposure.
We have written about this at length through the year, so that’s enough of that here.
Bonds in a fund focused on sustainability
The Premier Miton Diversified Sustainable Growth Fund invests in bonds, equities, property company shares and other asset classes including alternative investments. These are assessed against relevant Environmental, Social and Governance (ESG) criteria and are aligned with sustainable growth themes.
Bonds issued by utility, infrastructure and financial companies, amongst many others, can be associated with these themes. Government bond investments reflect the countries that issue them, with some demonstrating a progressive approach to factors such as democracy, civil liberties, and the environment. Green bonds are an example of this.
Green bonds are becoming more and more popular with companies issuing them and with investors too. Unlike many “green” assets, green bonds are a well-defined product under the Green Bond Principles and are a global, growing market which has been around since 2006.
While a green bond’s credit risk does not differ from a non-green bond issued by the same entity, the way the proceeds from a bond issuance are used is different. The Green Bond Principles state that the proceeds from a green bond should be used on green projects with categories such as renewable energy and energy efficiency. The selected category is specified at the time that the bond is issued.
We are finding numerous interesting opportunities to invest in such bonds and they come with the benefit that the proceeds raised by the issuer are providing positive impacts for the environment and society. Let’s look at a couple of examples.
Examples of green bonds held in the fund
Orsted 5.125% 13/09/2034
Orsted is a Danish energy company involved in renewable energy generation and distribution.
The company has transformed from being one of Europe’s most carbon and coal intensive energy users to becoming a green energy leader. In 2019, it met its target to transform its energy production being 85% from fossil fuels to 85% from renewables by 2040, a full 21 years early.
Orsted is now committed to generating 99% of its energy from renewable sources by 2023. In 2021, around 90% of its energy was generated from ‘green’ sources, with the company focusing on developing wind power infrastructure and transitioning thermal plants away from fossil fuels.
Additionally, in 2021, the company expressed a desire to have a net positive impact on biodiversity across all new power plants commissioned by 2030. Orsted is at the leading edge of renewable power generation and has ambitious plans.
NatWest 2.057% 09/11/2028 & NatWest 2.359% 22/05/2024
NatWest issues green bonds whose proceeds are used to provide green building loans under the green project category of “energy efficiency.” NatWest reported that, at the end of 2021, their green bonds to date had provided over 2,000 UK green mortgages avoiding 6,400 metric tons of CO2 a year.
Good buy Mr. Green Bond?
Bonds are a key asset class for a multi asset fund, yields have risen to levels that provide interesting opportunities and green bonds are well suited for a fund investing in sustainable growth themes: this is a good combination for the Premier Miton Diversified Sustainable Growth fund.
