Rathbone Greenbank Global Sustainable Bond Fund

Video transcript

Speakers

• Victoria Bartlett – Senior PR Manager, Rathbones
• Bryn Jones – Head of Fixed Income and Fund Manager, Rathbones
• Stuart Chilvers – Fund Manager, Rathbones

Transcript

Victoria: Hi, I’m Victoria Bartlett, part of the PR team here at Rathbones. Today, I’m joined by Bryn Jones and Stuart Chilvers, the fund managers of the Rathbone Greenbank Global Sustainable Bond Fund.

We’re going to take a deep dive into the strategy, covering everything from its investment philosophy and process to what makes the fund different and where it might fit within a broader portfolio. Bryn and Stuart, thanks for joining me.

Stuart, could you start by introducing yourself?

Stuart: Thanks, Victoria. I’m Stuart Chilvers, a Fund Manager within the Fixed Income team, and I’ve been at Rathbones since 2017. I’m involved in managing funds across the Fixed Income range and I’m a co-manager of the Rathbone Greenbank Global Sustainable Bond Fund.

Victoria: Thanks, Stuart. And Bryn?

Bryn: Hi, I’m Bryn Jones. I’ve been at Rathbones since 2004, so I’m heading towards veteran status. I’m Head of Fixed Income at Rathbones and am involved in managing the team.

Victoria: Bryn, can you start by telling us about the fund’s core objective?

Bryn: The core objective is quite simple: to outperform the benchmark, which combines global credit, high yield and global government bonds, while applying a sustainable investment overlay.

Victoria: What principles guide the way you invest and construct the portfolio?

Bryn: At its core, this is a global fund. We take a strategic approach to managing it, adding or reducing risk through allocations to high yield and global government bonds.

The fund also has a strong sustainable investment overlay. One of its key focuses is delivering long-term sustainable returns. We believe sustainable investing can also help protect against downside risk.

Another important point is that the fund has a Sustainability Disclosure Requirements, or SDR, Sustainability Focus label. This is relevant for investors who require SDR-labelled funds as part of their sustainable investment approach.

Victoria: Stuart, how does the investment process work in practice, and how do sustainability considerations sit alongside traditional fixed income analysis?

Stuart: Sustainability considerations influence the entire investment process. Every investment in the fund must be aligned with one of our eight sustainable development themes, which are closely aligned with the United Nations Sustainable Development Goals. When undertaking both top-down and bottom-up research, we consider how potential investments relate to these themes.

We undertake credit analysis using our four Cs plus model. The four Cs are character, capacity, covenants and collateral, with the additional element being conviction.

As part of this analysis, we consider whether the market is underappreciating any environmental, social or governance risks or opportunities, and whether the fundamentals are consequently being mispriced.

We also undertake a range of relative-value analysis to ensure that we are being adequately compensated for the risks we take. From a sustainability perspective, this could involve comparing valuations with an otherwise similar peer or considering the “greenium” if it is a labelled bond.

We also consider the implications of longer-term policy for valuations. For example, could the greening of central bank quantitative-easing corporate bond portfolios mean that, if quantitative easing were deployed again, more sustainable issuers would experience less significant spread widening?

For an investment to be included in the fund, it must be reviewed by the sustainability team, which is independent of the investment team, to ensure that it meets the fund’s sustainability criteria.

Finally, before making an investment, we undertake risk analysis to understand how a proposed position size would affect the characteristics of the portfolio.

Victoria: Bryn, looking at the fund’s ongoing management, how do you monitor and manage risk?

Bryn: Risk management is consistent across our entire fund range. We have a strong risk management team that examines factors such as duration and duration-times-spread. We operate within defined ranges designed to help us generate outperformance.

This is a benchmark-oriented fund, probably the most benchmark-oriented of the funds we manage. Its core allocation is 70% global credit, 15% high yield and 15% global government bonds excluding Japan.

We operate within additional constraints. At its core, this is a corporate bond fund, so the minimum allocation to global credit is 60%.

Allocations to high yield and global government bonds are the levers we can use to add risk to or remove risk from the portfolio. The high-yield allocation can range from 0% to 40%. If we have a particularly positive outlook for risk, we can increase that allocation towards the upper end of the range.

Similarly, the allocation to global government bonds excluding Japan can range from 0% to 40%.

On a day-to-day basis, we manage the fund around its benchmark and core asset allocation. We then manage the associated risks with the aim of generating long-term outperformance.

Victoria: Stuart, many bond funds incorporate sustainability considerations. What differentiates this fund from the others?

Stuart: I believe several features differentiate this fund from others that incorporate sustainability considerations.

The decision on whether an investment meets the fund’s sustainability criteria is made by a team that is independent of the team responsible for managing the fund. This removes the potential for conflicts of interest when making marginal decisions.

Our sustainable investment framework also ensures that every investment in the fund is aligned with one of our eight sustainable development themes.

Every holding must pass the sustainability screening process, including government bonds. We have developed a separate framework for government bonds because assessing a sovereign issuer requires a different approach from assessing a company. However, we still believe these investments should be assessed rather than given blanket approval.

We are also keen supporters of labelled bonds, including green, social and sustainability bonds, where the proceeds are ring-fenced for a specific purpose.

However, we also assess the framework supporting the issuance. We consider factors such as how the proceeds can be used, the transparency and reporting surrounding their use, and whether the funding is genuinely transformational for the issuer or simply represents business as usual with a sustainable label attached.

Therefore, a bond does not automatically pass our screening process simply because it carries a sustainable label.

Victoria: We’ve learnt a lot about the fund. Thank you both. Let’s finish with an important question: who is the fund best suited to, and how could it fit within a broader portfolio?

Bryn: The fund is suitable for global corporate bond investors. It is a global corporate bond fund at heart and, with its sustainable investment framework, it may also be suitable for investors seeking a sustainable investment approach.

However, its potential audience does not stop there. The fund may also suit strategic investors seeking yield, as its exposure to corporate bonds offers the potential for additional yield over government bonds.

The flexibility to adjust allocations to high yield and global government bonds also allows us to add or reduce risk on behalf of investors. That may make the fund suitable for strategic fixed income investors as well.