Axa Insurance to add niche bond and ESG funds

The Singapore-based deputy director for investment and wealth management at Axa Insurance is adding funds in both areas in response to rising investor demand.
Axa Insurance to add niche bond and ESG funds

Axa Insurance plans to expand its funds range for Asian clients by adding bond and ESG-focused funds, according to Ernest Low, the company's regional deputy director of investment and wealth management.

The French-headquartered financial group currently offers around 115 funds to wealthy clients in Singapore. Low, who is based in Singapore, told AsianInvestor that he hopes to add a bond fund that is fully invested in preferred securities soon.

“While most areas of the global bond market look expensive, preferred securities, such as CoCos (contingent convertible bonds) and other AT1 (additional Tier 1) instruments, is a niche that continues to have reasonable valuations."

The estimated yield from this fund is estimated at 5.7%, he added. "The fund has about 80% of its portfolio is invested in investment grade credits but provides high yield like returns," he said, but declined to name the fund.

Preferred securities, also known as hybrids, rank junior to senior debt but are senior to common equity and have been growing in popularity especially among institutional investors, according to experts.

AT1 CoCos, are issued by non-US (mostly European banks) as a form of offset against potential losses, as part of new regulations following the global financial crisis.

The securities are a form of risky debt (typically issued by European financial institutions) that convert to equity when a predetermined trigger is met, such as when the issuer’s capital or balance sheet plunges in value.

In a September 18 blog post, MSCI senior researcher Gergely Szalka pointed out that the 5% to 7% yields paid by these securities have been a draw for investors.

"Issuance has continued, mostly in Asia Pacific recently, with $675 billion in CoCo bonds outstanding worldwide," he noted in his post.

CoCos have seen strong performance in the past six months, according to Ariel Bezalel, head of strategy—fixed income at Jupiter Asset Management. However, unlike Low, he told AsianInvestor he was cautious about current CoCo valuations, despite the proven resilience of the asset class and on-going improvements in the fundamentals of banks (issuers of CoCos).

The search for yield has also turned some investors keen on global-inflation linked bond funds, according to Low, who believes such products could hold some upside potential in the years ahead, even as investors who remain concerned about faster-than-expected pace of interest rate hikes continue to prefer investing in short duration bond funds.

Eager for ESG

Another investment theme that is gaining interest among investors is environment, social and governance (ESG) factors, noted Low. He said Axa is keen to on-board at least two ESG focused equity funds over the next 12 months.

The insurer has been already encouraging the adoption of ESG principles with its fund providers, he said. "Almost 90% of the fund houses we deal with have signed up with the Principles of Responsible Investing," he said.

However, Low acknowledged that different standards exist for ESG across the world.

Earlier, tobacco companies used to be excluded from portfolios of investors focused on ethical investing. Today, a tobacco company that does not sell to young people can be considered socially responsible, he noted.

"One needs to understand the standards used to ensure they are in line with preferences."

The desire to be more socially responsible and environmentally conscious while making investment decisions is growing among Asia’s wealthy investors, especially the younger generation, several wealth experts told AsianInvestor recently.

According to the Global Sustainable Investment Review 2016 by the Global Sustainable Investment Alliance, $52.1 billion in assets were managed by one or more sustainable investment strategies in the Asia Pacific.

Appetite for equities

Low also noted continuing investor demand for global and emerging market equities. "We are also advocating some focus on emerging markets, in particular Asia, in client portfolios," he added.

While some experts believe Asian equity valuations have hit high levels, some fund houses such as Fidelity remain optimistic on prospects for Asia, especially Asean equities. Their view is that the region wil see equities rally on the back of improvements in earnings growth.

A Fidelity report dated October 10 noted that while China and Korea have outperformed this year, Asean markets have trailed.

“This may provide an opportunity to add some defense to equity allocations by rotating into the laggards, while remaining overweight the asset class overall,” the report noted.

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