Generali Investments SICAV Euro Green & Sustainable Bond sub-fund

Generali Investments SICAV
Euro Green & Sustainable Bond sub-fund

  • Key Features
31/08/2020
 
  • Leverages on the proven experience and long track record of the Generali Fixed Income Team in managing euro bond portfolios 
  • A responsible investing approach for today and tomorrow through bonds that finance green, sustainable projects
  • A liquid, transparent strategy that makes a real, positive impact on environmental issues, for example climate change and the energy transition 
  • Helps reduce the carbon footprint of an existing investment portfolio
  • Benefits from a cautious and active investment approach through rigorous selection of green investment-grade, diversified bonds with high average rating.
  • At least 70% of its net assets are invested in Euro Green and Sustainable Bonds selected from the Bloomberg MSCI Barclays Euro Green bond Index
  • Up to 30% can be invested tactically to increase yield and expected performances
  • Performance of the sub-fund

Fund launched in 2019 and, according to the applicable regulatory framework, performance data with less than one year’s track record is not shown.

Fund Facts
Management Company
Generali Investments Luxembourg S.A.
Investments Manager
Generali Investments Partners S.p.A Società di gestione del risparmio
Fund Managers
Mauro VALLE / Fabrizio VIOLA
AuM
€ 87.92 M
Domicile
Luxembourg
Inception date
December 16th, 2019
Share Class
EUR B Acc.
ISIN
LU2036759335
Benchmark
BARCLAYS MSCI EURO GREEN BOND INDEX (TR)
Management fees
0.35%
Performance fees
not applied

Source: Generali Investments Partners S.p.A. Società di gestione del risparmio

  • Monthly comment

Market view

August has seen a pick-up in Covid-19 cases in Europe, Japan and Australia, but US cases are pulling back. That said, new global cases flattened out and fatality rates declined to 3.3% from a peak of 7.4% in April, partially from better protocols in hospitals and partially because more asymptomatic and mild cases are detected. Globally, almost 8 million people have been diagnosed with covid-19 during the month. Vaccines are expected on the market by 21H1. Falling mortality rates and larger spare capacities in ICUs will allow governments to avoid blunt lockdowns.
In the US, growth in Q2 was revised up to -9.1% qoq (-31.7% annualized), and during the summer the economy has shown signals of rebound, especially in the sectors less affected by restrictions. However, short-term indicators point to GDP still 6% below last year’s levels. The rebound in the job market seems to be losing stream and the lack of an agreement on the extension of income support is a downside risk to consumption. Politics will add to uncertainty in the two months before the presidential election. The Fed shifted to an average inflation targeting over the business cycle, allowing for temporary overshooting from the 2% target. That said, it did not specified the time span used to average inflation but in the end the Fed remain dovish and supporting.
In the euro area, the recent tighter travel restrictions following the latest increase in covid-19 infections left their mark: the services PMI receded to 50.5 from 54.7 in July. The August setback in the services and composite PMI highlights that the recovery remains vulnerable. Moreover, fiscal support measures currently prevent layoffs and state guarantees help firms, but there is a risk of cliff edge effects when these measures will expire. The ECB could announce a time extension and an increase in the QE already in place by the end of the year.
In the past month, core yields slightly increased: the US 10-year yield by 15 bps to 0.69% and the 10-year Bund by 13 bps to -0.40%. The Italian spread further tightened by 5 bps to 156 bps and the Iberian spread by 7 bps to 80 bps. Credit spreads continued to tighten in August as primary market have been limited and net supply negative.

Portfolio Activity

During the month the inflow has been invested in line with the risk profile and the expected return of the portfolio using a balanced mix of government and supranational bonds. Considering the low level of activity in August we had a subdued activity on the credit side of the portfolio. But we also received new inflows that were invested into 2 preexisting utilities positions (Terna and Tennet) and a new one (ABN Amro). In any case, considering the material rally occurred along the month and reinforced at month end too, we decided to open a tactical short on ITRX X-Over index (weak HY issuers, not involved into Green economy). This Index recorded 2 default in August of 2 retailers in UK, a prelude that a possible new wave of volatility could materialize in autumn, so a decompression trade between good IG Green issuers and weak HY issuers could protect adequately the portfolio.

Outlook

The central banks worldwide accommodative stance aimed to support the economies using all their monetary policy tools, it is a positive factor for the rates environment especially for core and semi-core space. In particular, the PEPP can be considered as a backstop in Eurozone for the spread widening. Like in 2016, the CSPP (Corporate Sector Purchase Programme) should limit widening, and more so as the Fed is now also a buyer of corporate bonds. The system of government guarantees and bailout funds, as well as intense central bank buying in IG space, will reduce the liquidity risk and facilitate the reopening of primary markets. The portfolio will continue to be invested maintaining the same average rating and the same level of diversifications. The duration exposure will be managed in the range 8 – 10 years with a tactical approach. In this context and with this outlook we strongly believe that Green Bond IG issuers will contribute to the economy’s revival by supporting the restart of businesses, while protecting their own financial stability.

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