TargetNetZero Global Convertible Bond

    TargetNetZero Global Convertible Bond

    Investing in companies with a clear strategy of decarbonisation.

    Convertible bonds offer investors the opportunity to participate in the performance of equity markets while limiting the downside due to the bond characteristics of the asset class. This asymmetrical quality can provide diversification for traditional portfolios. As the global economy engages in climate transition, we are delighted to present an innovative global convertible bond strategy with a defined target of net zero by 2050, as set out in the Paris Agreement. 

    Source: LOIM. Past performance is not a guarantee of future results. There can be no assurance that the Sub-Fund’s investment objective will be achieved or that there will be a return on capital or that a substantial loss will not be incurred

     

    A concentrated high conviction portfolio designed to be a sustainable solution for convertible bond investors

     

    Convertible bonds are corporate bonds which offer investors the option to convert into share

    They allow investors to participate in the potential upside of equities while limiting the downside in falling markets1

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    Article 9 classification Targeting 50% emissions reductions by 2030 and 100% by 2050

    Proprietary, science-based methodology developed in partnership with Oxford University

    Source: LOIM. For illustrative purposes only.
    Source: LOIM, Bloomberg 31 October 2021. For illustrative purposes only.

     

    why invest?

    A climate transition-focussed opportunity offering the potential to participate in rising equity markets, cushioned by a ‘bond floor’ in falling markets.

     

    A concentrated high conviction portfolio designed to be a sustainable solution for convertible bond investors.

    The sustainable power of both worlds

    We aim to exploit the full potential of this hybrid asset class.

    We search the global investment universe for attractive opportunities, seeking to gain exposure to the best the asset class has to offer. We select companies with a clear strategy of decarbonisation (targeting net zero by 2050), investing in our highest conviction names in global convertible bonds through a concentrated portfolio.

    Our objective is to generate potential outperformance through a more flexible approach to risk.

     

    Best of both worlds and climate focussed

    We select companies with the most compelling trajectory towards net-zero alignment by 2050 to give diversified exposure via a portfolio of value names and high-growth disruptors. Convertible bonds derive their performance from multiple sources:

    1. Exposure to potential equity market upside. The extent to which the price of the convertible bond is expected to change for a given change in stock price is known as the delta. The risk budget of the portfolio is flexible, allowing us to align equity exposure to our top-down and bottom-up market view.

    2. Capital protection on the downside from bond characteristics. We select issues with strong fixed income attributes to maximise the value of the bond element.

     

    A long-standing franchise at Lombard Odier Investment Managers

    A market leader

    Established team

    High Conviction

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    LOIM has been investing in convertible bonds since 1987, building up over three decades of convertible bond experience across market cycles.

    The 11-member investment team conducts extensive analysis, leveraging the research and risk management capabilities of LOIM’s global platforms, including key insights from our 35+ Sustainability and Climate Science Experts.

    A search for the highest potential investments across different regions, sectors and styles, targetting those with a clear CO2 reduction strategy for the portfolio.

     

    Incorporating LOIM’s decarbonisation expertise in a well established process

    TargetNetZero Global Convertible Bond investment process

     

     

    Global convertible bond universe (800 issues)

    Target net zero analysis (400 issues)

    Exclude
    tobacco, controversial weapons, severe controversies and unsustainable businesse

    Lower
    Temperature

    Reduce
    CO2 footprint by at least 30% Net zero emissions by 2050

    Prefer Ice cubes

    Avoid burning logs

    Fundamental analysis
    • Top-down market drivers
    • Sector and sub-sector views
    • Equity and credit analysis
    • Evaluate equity upside potential
    • Assess credit spread tightening
    • Actively favour high ESG scores and avoid low scores
    • Sustainability of business model
    • Management quality
    Technical factors
    • Convertible bond characteristics
    • Profile - implied volatility, delta, gamma, rho
    • Rich/cheapness
    • Liquidity/market dynamics
    • Fixed income characteristics – rating, subordination, duration
    • Prospectus terms - ratchets, calls, puts

    Portfolio construction

    Average delta, overall credit rating, portfolio temperature, sector weighting, individual position size

    Target Net Zero Global Convertible Bond Portfolio

    (Approximately 50 issues)

    Source: LOIM analysis. For illustrative purpose only. Sustainable Investment Research Strategy & Stewardship (SIRSS) and Environment, Social and Governance (ESG) are LOIM's transversal sustainability teams. 1 Coal power, coal mining, unconventional oil and gas. There can be no assurance that investment objectives will be achieved or that there will be a return on capital

     

    investment team.

     

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    Natalia Bucci
    Co-Portfolio Manager

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    Arnaud Gernath
    Co Portfolio Manager

    Source: LOIM, November 2021.

     

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