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INVESTMENT STRATEGIES

Sustainable Bonds Global Financials (AT1 or CoCo Bonds)

Sustainable investing in subordinated bonds issued by high quality financial institutions that count as regulatory capital

AT1 bonds are subordinated bonds issued by banks. This is the newest form of regulatory capital, according to Basel III. In essence, banks issue regulatory capital at a lower cost than equity. Investors benefit from the subordination and extension risk premium. The yield on AT1 bonds is substantially higher than that of senior bonds.
The strategy incorporates our ESG investing methodology, following a “worst-out” approach. Sustainability can add value by mitigating risks that are frequently underestimated, such as legal, environmental or reputational risks, among others. At the same time, sustainability provides insights into the quality of the issuer, complementing our fundamental analysis.
Our strategy has an opportunistic allocation to Emerging markets, which enhances the risk / return profile of the portfolio. In addition, the portfolio is also diversified in terms of instruments as we can also invest in insurance CoCos (RT1s) and Lower Tier II instruments.
The portfolio is not benchmarked and is therefore unconstrained. Hence, the manager has the flexibility to invest in what he judges as most value-adding, ruling-out what he doesn’t, whilst adhering to our investment guidelines and risk parameters.
"With a unique mix of top quality issuers and tremendous yields, AT1s are certainly the place to be for investors seeking an alternative to the traditional high-yielding asset classes. Banks have been running buffers on top of buffers in the past decade, making the sector a pillar of strength. AT1s are the sweet spot within the capital structure to best benefit from that secular trend.”
-Benoît Robaux
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