Insights and market news

In recent years we have seen a rapidly increasing focus on responsible investment by investors, wider society and regulators. This responsible approach has been underpinned by the incorporation of Environmental, Social and Governance (ESG) factors in the investment process. Growth in ESG investing is being driven by a number of factors, and it is unlikely to change course.

The M&G (Lux) Global High Yield ESG Bond Fund combines M&G’s long-running expertise in high yield investing with a rigorous assessment of environmental, social and governance (ESG) factors.

Our current trajectory of greenhouse gas emissions looks set to cause irreparable damage to the planet, altering the nature of our existence forever. A less extreme outcome is possible, but will require the widescale adoption of renewables. As such, the market share of renewable energy sources – in particular, wind and solar – is expected to grow at an exponential rate.

Bond investors frequently use the experience of US bond markets in 1994 as an example of the impact that duration can have in times of sharply rising yields. In 1994, an improving economy encouraged the US Federal Reserve to increase interest rates multiple times, leading to what became known as the ‘great bond massacre’.

The sixth in a series of videos looking at the change in investor behaviour over the years and how asset managers have responded, Global Head of Distribution, Jonathan (Joffy) Willcocks talks about ESG, a concept many decades in the making, finally gaining momentum.

In this month’s update Ritu Vohora, Investment Director, explores the impact of rising US yields and a resurgent dollar on emerging markets. Is this a déjà vu of 2013’s ‘Taper Tantrum’?

For a quick snapshot of the equity market over the past month and our latest theme, please download our Equities market perspective note.

When we introduced the dividend growth strategy in April 2015, we were struck by the stark valuation differential we saw between the cyclical and defensive parts of the market. From the end of the global financial crisis until 2016, defensive stocks – in particular, so-called ‘bond proxies’ – enjoyed a prolonged bull run. A low bond yield environment and investors’ willingness to pay a premium for perceived safety drove their share prices higher. In many cases, the market was willing to pay up for these stocks regardless of their deteriorating fundamentals. On the other hand, cyclical stocks offered strong fundamentals, but were out of favour. As such, when we put together our portfolio in April 2015 we had a significantly higher weighting of cyclical stocks than we would under ‘normal’ circumstances. We have maintained the tilt throughout the three years since then, as the valuation differential has persisted.