UBS Wealth Management has launched an Engagement High Yield Fund aligned with the UN’s Sustainable Development Goals, for clients in Asia and globally.
The news was first reported by ESG Clarity‘s sister title, Fund Selector Asia, following an interview with Mario Knoepfel, UBS Wealth’s Hong Kong-based client investment specialist and head of sustainable investing advisory for Asia-Pacific.
UBS Wealth has partnered with Hermes Investment Management to manage the fund, which was first launched in the US last month and most recently in Europe.
Hermes IM already manages a high yield strategy, but without the engagement focus, Knoepfel said.
By “engagement” he means working with the company management to improve the sustainability profile, which in turn should be beneficial to the company’s credit rating.
Knoepfel explained that high yield bonds, which have lower credit ratings, usually also have lower sustainability characteristics.
“What this strategy aims to achieve is to work with companies to improve their business, and over time, improve their credit ratings,” he said during a recent media briefing in Hong Kong.
The SDG Engagement High Yield Fund has around 75-100 positions. The product is co-managed by Mitch Reznick, head of research and sustainable fixed income at Hermes, and Fraser Lundie, head of credit. Aaron Hay acts as the lead engager of the new fund.
RISKS IN HIGH YIELD
UBS clients can access the high yield engagement fund either by directly investing in it or investing in the bank’s sustainable cross-asset portfolio, which was launched in Asia last year.
The bank decided to include the fund in the sustainable portfolio for diversification. However, exposure to the fund is small, which is around 2%, according to Knoepfel.
Sustainable cross-asset portfolio (balanced) asset allocation/sleeves
| Equities | |
| ESG engagement equities | 14% |
| ESG thematic equities | 15% |
| Improving ESG equities | 15% |
| ESG leaders equities | 8% |
| Fixed income | |
| World Bank bonds | 14% |
| Green bonds | 13% |
| Corporate bonds ESG leaders | 14% |
| ESG engagement high yield bonds | 2% |
Source: UBS Wealth. Note: UBS clients can invest directly in each individual sleeve
Knoepfel explained that high yield bonds are more volatile compared to higher-grade bonds.
“High yield bonds typically offer 4% higher returns than US government bonds, which makes them attractive.
“But even though they are in the fixed income category, high yield bonds tend to behave like equities. So we don’t want to have too much high yield bond exposure, though it is a nice diversifier to the overall portfolio.”
Separately, Knoepfel said that the sustainable cross-asset portfolio continues to grow. Apac-sourced AUM for the sustainable cross-asset portfolio has reached at least $600m since it was launched in the region in April last year. Globally, the portfolio has around $6bn in AUM, according to Knoepfel.
In total, UBS Wealth manages around $313bn globally on behalf of institutional and private clients in sustainable investing strategies, according to the bank.
MORE PARTNERSHIPS
This is not the first time that UBS Wealth partnered with Hermes IM to develop a product. Last year, the fund manager developed the engagement equities strategy portion of the bank’s sustainable cross-asset portfolio.
The strategy accounts for around 14% of the balanced sustainable portfolio.
However, the bank has added another manager for the ESG engagement equities strategy, Knoepfel said, but did not name the partner.
“Hermes was our first partner for the ESG engagement equities strategy, and we have added a second partner.
“It helps us broaden the investment universe, so we are open to working with additional partners as well,” Knoepfel said.
