By Canada Life | March 23, 2022

On the Canada Life™ Portfolio Manager Connect Series, we’ve welcomed multiple investment leaders from J.P. Morgan Asset Management (JPMAM): Tim Woodhouse, Executive Director, and Myles Bradshaw, Managing Director and Head of Global Aggregate Strategies. Together, these events provided insight into how they combine expertise in responsible investing across global fixed income and equities to deliver for Canada Life Sustainable Portfolios™. Learn more on their approach to sustainable fixed income. In case you missed it, check out the previous article that explores how they search for sustainable leaders.

What’s in this article

• Strength of the Global Sustainable Fixed Income Strategy
• How can fixed income be sustainable?
• How does J.P. Morgan Asset Management invest in sustainable fixed income assets?
• 2022 outlook for fixed income
• Multi-asset investing done responsibly

The fixed income component of Canada Life Sustainable Portfolios uses J.P. Morgan Asset Management’s flagship aggregate bond strategy. The breadth of the strategy’s benchmark index (Bloomberg Global Aggregate) and flexible investment guidelines means there’s a great deal of diversification built in. This variety of global opportunities is key to finding sources of return for Canadian investors in our low-rate environment.

Bradshaw and his team have successfully manoeuvred through a variety of market environments thanks to the flexibility of the fund. These include the credit sell-off due to COVID-19 in the first half of 2020, the reopening phase in the second half and the period of interest rate volatility that has defined most of 2021.

Their aggregate bond strategy is built on three pillars of sustainability:

1. ESG integration – ESG factors are incorporated across all types of analysis, whether credit research or sovereign (government) analysis.  
2. Exclusions – The underlying fixed income fund is not able to invest in certain sectors based on norms - and values-based exclusions that span UN Global Compact violators, weapons, tobacco and thermal coal.
3. Positive tilt – An active ‘tilt’ is used to prioritize investment in securities with positive ESG characteristics or momentum. For fixed income, this tilt affects both corporate and government debt: investment-grade and high yield corporate debt must maintain a higher ESG score than the benchmark, whereas sovereign bonds are evaluated using their proprietary fundamental ESG analysis. This analysis uses a holistic array of internationally regarded data sources to score a country based on two sets of criteria, depending on whether they fall under developed or emerging markets. A country’s trajectory and engagement with ESG issues are key considerations.
   

JPMAM remains confident that we’ll see above-trend growth in early 2022, associated with falling unemployment and corporate default rates remaining low. Bond yields are expected to rise as monetary policy becomes less favourable.

They are underweight U.S. duration compared to the benchmark. This helps lower interest rate risk because as fixed income assets are held over time, they risk losing value when interest rates rise. The market has signalled that inflation is expected to be persistently above the U.S. Federal Reserve Board’s (Fed) target. JPMAM believe that U.S. interest rates are likely to rise faster than the market predicts as yields rise and the Fed normalizes policy.

They are selectively overweight investment grade corporate bonds and high yield credit for income purposes. Corporate sector debt is in quite a strong position, consistent with the last decade, and corporate default rates are expected to remain low. Particularly in Europe, credit fundamentals are improving with leverage falling. As a result, they’ve moved down the credit ladder to carefully invest in assets that will increase income, such as European bank capital, subordinated debt and high yield corporate debt.

Canada Life Sustainable Portfolios help clients invest in a way that aligns with their values without sacrificing potential returns. If your clients are interested in investing sustainably, shouldn’t their fixed income allocation consider sustainability, too? As we heard on the calls, this total portfolio solution uses a mix of several responsible investing strategies to both increase the potential for risk-adjusted returns and help drive positive ESG influence on a global scale.

With three different asset allocations – Conservative, Balanced and Growth – you can continue to meet your clients’ needs, even as those needs grow and change. Each fund is diversified globally across equities and fixed income, and has the right portfolio management tools in place to navigate volatile markets. Talk to your Canada Life wealth wholesaling team today for more information.