Morgan Stanley Investment Management launches ESG fixed income fund

ESG

Morgan Stanley Investment Management is rolling out a new ESG-focused fixed income fund, which aims to tap into sustainability themes by trading a range of ‘best ideas’ credit opportunities across the capital structure in developed and emerging markets.

The Morgan Stanley UK Sustainable Fixed Income Opportunities Fund will target risk-adjusted absolute returns using a sustainability-based top-down selection process. The portfolio will comprise an assortment of investment grade, high yield, emerging market, convertible, securitised and government bonds.

Specifically, the investment process aims to curb exposures to ESG (environmental, social, governance) risk and negative sustainability impacts by screening out controversial sectors such as weapons, tobacco, and certain fossil fuels, as well as international norms violations.

“Our flexible approach to portfolio positioning allows us to adjust market exposure in line with the macroeconomic backdrop, as we seek to generate returns from a broad range of investment opportunities,” said portfolio manager Leon Grenyer.

Using MSIM Fixed Income’s proprietary ESG assessment methodologies, the portfolio will be tilted towards the strongest sustainability performers across sovereigns and corporates according to sub-sector.

The fund has a particular focus on low carbon footprint, with the portfolio designed to be less carbon intensive than its index. The strategy will maintain a net positive alignment with the UN SDGs, while also investing in green, social and other labelled sustainable bonds.

“We utilise an active asset allocation process across the global fixed income opportunity set, and, as we are not tied to a benchmark, our investment decisions are not restricted by geographic and sector weightings,” Grenyer added.

“We believe that a benchmark-orientated approach to investing in fixed income can be sub-optimal as asset allocation driven by benchmark weightings can result in exposure to parts of the market which offer lower potential returns or greater risk. As such, an active and flexible investment strategy may be a better alternative and stand to outperform.”

Navindu Katugampola, head of sustainable investing for fixed income and liquidity at Morgan Stanley Investment Management, said: “We actively seek to identify holdings with a long-term competitive advantage by relying on a process that includes ESG integration, social and environmental impact assessment, and active engagement.”