Fixed Income and ESG - A Strategic Fit

TBLI Conference Asia 2009

Workshop 11 – Fixed Income‘Fixed Income and ESG - A Strategic Fit’

Wolfgang Pinner, MBA

2TBLI Conference Asia 2009

ERSTE-SPARINVEST Overview

Market acceptance and performance

Characteristics of SRI bond vs equity management

Agenda

Fact sheets and contact details


WWF… Partner for thematic fundsVINIS… Brand for sustainable funds Verantwortung (Responsibility), Innovation,

Nachhaltigkeit (Sustainability), Investment, Sicherheit (Safety)

ESPA VINIS BOND

ESPA VINIS STOCK AUSTRIA

ESPA VINIS STOCK EUROPEESPA VINIS STOCK GLOBAL

ESPA WWF STOCK UMWELT

ESPA WWF STOCK CLIMATE CHANGE

2001 2002 2003 2004 2005 2006 2007

ESPA VINIS STOCK EUROPE-EMERGING

2008

ESPA’S fund management has long term experience in SRI

ESPA VINIS CASH

Timeline Responsible Investment Funds


ESPA VINIS SRI Concept

Total Universe

SRI Universe

BUY HOLD SELL

Portfolio Optimisation

SRI- RETURN

Economic Filterfor timing purposes

Ratios,TE-Analysis

‘Ethics-Committee‘/ Stakeholder Know-how

SRI Sector Research

Environment & Stakeholders CG/ Ethics

‘Investment Board‘/ Investment Know-how

Cooperation ICCSR/Nottingham University

SRI - Process & financial

quantification of extra-financial

items

ERSTE-SPARINVESTFinancial Rating

Portfolio Creation-Process

style ERSTE-

SPARINVEST

Voting & Engagement Process

I

II

III

IV

Specialised Rating Agencies

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Res

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Research SRI Team ERSTE-

SPARINVEST

The ESPA VINIS management concept





Agenda



- Ratings of issuers

- Liquidity of bonds

- Engagement & voting

- Is sufficient (SRI)research available?

- Which styles of SRI (screening, best-in-class etc.) fit best?

Questions for day-to-day SRI fixed income management


- Ratings of issuers- corporate bonds = equity rating?, covered bonds = equity rating?, government bonds = separate rating?

- Liquidity of bonds- unforeseen liquidity trap more likely than in case of equities

- Engagement & voting- engagement is possible, but rather unusual

- Is sufficient (SRI)research available?- availability has improved, but still lags that of equity ratings

- Which styles of SRI (screening, best-in-class etc.) fit best?- Screening is easier to explain, best-in-class for governments has rather low visibility

SRI equity versus fixed income management


- Risk: elimination of FX risk – focus on Euroland

- Diversification: inclusion of corporates (financials and industrials), collateralized bonds and supranationals, government bonds

- Rating category: investment grade (better SRI-research coverage and ratings)

- Screens: fixed-income specific exclusionary screens (death penalty, freedom of association, human rights, labour rights, nuclear power, nuclear weapons) and positive screens (climate change politics) for sovereign and non-sovereign issuers

- Performance: dependence on spread investments

- Sustainability focus: add other sustainable topics (micro finance etc.)

Designing an SRI bond or cash product





Agenda



- Diversification: the asset class SRI is regarded as different with regards to risk/return characteristics

- Pure SRI portfolios: fixed income plays an important role at least in portfolios on the European continent

- Performance: SRI portfolios show no underperformance versus traditional products, primarily the ‘information effect’ leads to advantage in performance

- Exclusionary criteria: traditional exclusions for fixed income like death penalty and ILO standards become best practice

Driving forces for SRI fixed income products


The essential characteristics of sustainable investments are also strong arguments for SRI

Main Arguments for SRI

Positive

Neutral

Slightly Negative

Information Effect

Anticipation Effect

Positive Selection Effect

Small Companies Effect

Diversification Effect


Performance history of ESPA VINIS BOND – since inception

ESPA VINIS BOND versus government resp. corporate benchmark


Performance history of ESPA VINIS BOND – for 2008

ESPA VINIS BOND versus Fixed Income sub asset classes

EUR BIG Performance

-6,00%

-4,00%

-2,00%

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

Tage

% V

erän

der

un

g

EUR BIG All

Government

Collateralized

Corporates

Financials

ESPA VINIS Bond

12/2007 12/2008


CEE Overview



Agenda



ESPA VINIS BOND

Ratios (monthly/ 36 month):

Volatility /STABW (1 year):Tracking Error:Beta (1 year):Corr.coef.:Convexity:

Performance per 30.04.09 (since 31.12.08): • relative Performance:Performance per 30.04.09 (since 28.02.05)• relative Performance:

2.760 %0.706 %

0.9140.971

43.404

Time to maturity

Type: Fixed income fund, Stile: SRIISIN: (T) AT0000686084, (A) AT0000A01G95

Benchmark: Customized CompositeManagement fee: 60 Bp

Volume per 30.04.09: EUR 66,0m

Kennzahlen:

Performance since 01.01.2006

+ 1.19 % - 0.95 %+ 10.07 % - 6.41 %

Yield:Average yield:Duration:Modified Duration:

4.76 %6.38 years5.10 years4.87 %

96

98

100

102

104

106

108

110

112

ESPA VINIS Bond Customized Composite0% 5% 10% 15% 20% 25% 30% 35%

0 - 3 yrs

3 - 5 yrs

5 - 7 yrs

7 - 10 yrs

> 10 yrs


ESPA VINIS CASH

Ratios straight bonds:

Average yield:Average coupon:Average time to maturity:Duration:

4.08 %5.08 %

2,33 years2,17 years

Type: Money market fund, Stile: SRIISIN: (T) AT0000A03969, (A) AT0000A03951

Benchmark: 3-Mo-EuriborManagement fee: 24 Bp

Volume per 30.04.09: EUR 29,7m

Ratios money market FRNs:

Perforrmance since 01.01.2007

Average coupon:Average time to maturity:Duration:Average spread:

2.33 %3.64 years0.17 years521.5 Bp.

Fund breakdown

Performance per 30.04.09 (since 31.12.2008): • relative Performance:Performance 2007:Performance 2008:

- 0.61 % - 1.46 %+ 2.64 % - 2.91 %

Straight Bonds < 1 yr

17,45%

Cash-1,94% Straight Bonds

1 - 2 yr37,58%

FRN46,91%

96,0

97,0

98,0

99,0

100,0

101,0

102,0

103,0

104,0

105,0

ESPA VINIS Cash


Experience

2007 Head of Sustainability Funds at ERSTE-SPARINVEST KAG / Vienna

2006 CEO of VINIS (consulting company for SRI investments)

2001 Chief Investment Officer VBV pension fund

1996 Chief Strategist Investment Bank Austria (1997 merged with CAIB)

1992 Head of Research Erste Bank

1988 Analyst at Erste Bank

Education

2007 Executive MBA University of Nottingham

1989 Degree of a Mag.rer.soc.oec. from Vienna University of Economics and BA (comparable to ‚master‘ degree in UK)

Activities Lecturer at Vienna University of Economics and Business Administration, University of Linz, University of Applied Sciences in Vienna

Wolfgang Pinner, MBA, Head of Sustainability Funds


Disclaimer

This presentation was prepared for your personal use and for information purposes only. Any form of reception, publication, duplication or dissemination of the content by anyone other than the designated addressee is prohibited. The presentation was not prepared with the intention to give legal or tax advice. We cannot be held liable for the completeness, reliability, and accuracy of the material or any other information that is passed on or made accessible to the addressee either in writing, orally, or in any other form. We assume the data that are contained in this presentation on the basis of publicly available information to be accurate, but they have not been verified independently. The contents of this presentation are not legally binding, except where the presentation or parts thereof are confirmed in writing to this effect. The statements made to the addressee are subject to the provisions of the underlying offer or agreement, if any.Past performance is not necessarily indicative for future income. We cannot guarantee that a portfolio will achieve the gains or losses exemplified or that a projection will predict the actual performance of a portfolio with the same degree of accuracy as earlier projections. In contrast to the actual development of the portfolio, simulations are not based on actual transactions – hence their significance is limited. Since no actual trading takes place, the influence of some market factors cannot be modelled adequately, such as for example liquidity shortages.

Agenda

Date post:	14-Jun-2015
Category:	Economy & Finance
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Fixed Income and ESG - A Strategic Fit

Economy & Finance