An Active ESG Bond ETF Can Help Fixed Income Investors Add Value


AAs we explore the current market, investors in publicly traded index funds should think about what to look for with their external fixed income managers and how asset managers can add value.

In the recent webcast, Bonding Over Fixed Income: beyond ESG ratings and labelsJanelle Woodward, President of MacKay Shields LLC, highlighted the growing demand for environmental, social and governance principles among investments and how investors have targeted this growing market segment. Woodward explained that sustainable investing includes investment strategies that consistently view ESG factors as an important part of the fund’s investment thesis in order to meet investor values ​​and seek financial returns.

A growing number of institutional investors are focusing on ESG considerations to achieve their goals. When asked to list the main reasons for the increased interest from institutional investors, many investors highlighted factors such as public pressure, client pressure, ESG leading to better financial returns, l ‘ESG leading to non-financial impacts and ESG improving the image of a company.

Institutional investors have also indicated that the financial impact of ESG strategies compared to traditional bond strategies has been positive or, at worst, neutral.

However, there is a slight disparity in ESG focus between the US and Europe. For example, European institutional investors indicated that their main concern is ESG leading to non-financial impacts, and the majority indicated their use of ESG ratings as a means to define the investment universe and to assess managers by compared to their peers. On the other hand, US institutional investors are more focused on improving their ESG image and they are less dependent on ESG ratings, but those who are tend to pay attention to the performance of managers against benchmarks. .

“In our role as a global asset manager, MacKay Shields maintains an unwavering commitment to its people, the environment and the community,” said Woodward.

“In partnership with our parent company New York Life, we seek to effect change through corporate responsibility, including our commitment to responsible investing,” added Woodward.

MacKay’s ESG approach aims to eliminate uncompensated risk. ESG risk factors are essential to its first credit filters. Each team has a proprietary ESG rating system. External ESG resources complement those of the company.

Alexandra Wilson-Elizondo, Deputy Director of Global Credit and Senior Portfolio Manager at MacKay Shields LLC, explained that external ESG resources contribute to credit seeking as a means of achieving attractive risk-adjusted returns by seeking to eliminate risk. not compensated. The credit research process integrates an analysis developed in-house as well as external data sources. Research analysts are responsible for determining the ESG risks deemed significant.

Finally, MacKay can engage with issuers to improve results. For example, he tries to understand the ESG policies of a company, discuss what management believes to be ESG risks, inform management of best practices by peers and companies in other sectors, create a dialogue so that management is more receptive to feedback, to see interaction as the best way to assess progress towards milestones and to influence management on certain strategic decisions.

Investors can access the fixed income investment process through the IQ MacKay ESG Core Plus Bond ETF (ESGB), which focuses on investing in securities within the core bond universe that meet environmental, social and governance (ESG) criteria developed by MacKay Shields (MacKay), another New York Life Investments store and a global asset manager focused on fixed income and equity investing.

ESGB is an actively managed strategy that seeks total return on a large portfolio of fixed income securities while integrating MacKay’s ESG framework. The portfolio prioritizes issuers that show strong performance relative to their peers on certain ESG measures through portfolio selection and construction.

ESGB invests at least 80% of its assets in debt or debt-related securities, including government bonds, corporate bonds, mortgages and other asset-backed securities, and could include fixed or floating interest rates. The fund will generally seek to maintain a modified portfolio duration within 2.5 years (plus or minus) of the duration of the Bloomberg US Aggregate Bond Index. In addition, ESGB will invest at least 80% of its assets in securities that meet MacKay’s proprietary ESG methodology standards.

Financial advisers who want to learn more about green bonds and ESG investing can watch the webcast here on request.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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