GREEN BOND TRANSPARENCY - NIKKO ASSET MANAGEMENT emea.nikkoam.com - WM Seminare
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GREEN BOND TRANSPARENCY NIKKO ASSET MANAGEMENT emea.nikkoam.com For Professional Investors Only. Confidential – not for redistribution.
Climate Change Emergency
Source: Shutterstock
emea.nikkoam.com | 2
Climate Change Emergency
Source: Shutterstock
emea.nikkoam.com | 3
Green Bond Market
− A green bond is a fixed income instrument where the proceeds of the bond are exclusively invested in new and/or
existing eligible Green projects
− Green Bonds raise funds for new and existing eligible projects with environmental benefits
o In recent years Green Bond issuance has grown substantially, confirming the validity of the investment approach
and raising expectations for further expansion
− To help with this process, the International Capital Market Association (IMCA) developed the Green Bond Principles:
1) Define use of proceeds
2) Project evaluation and selection
3) Management of proceeds
4) Reporting
emea.nikkoam.com | 4
Green Bond Market
The first green muni bond was issued
by Massachusetts in June 2013
Apple issued $1.5 billion in bonds
dedicated to financing clean energy
projects in February 2016
First $1bn green bond
sold within an hour of
3 Sovereign Green Bonds Dutch State Treasury Agency (Certified
issue by IFC in March First high yield green bonds
issued: France, Fiji, Climate Bond) at EUR5.99bn
2013 launched in September 2014
Nigeria
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
First FNMA Green Nikko AM re-launches Green Bond issuance
Launched Nikko AM World Bond Issued June State of California
Global Green Bond passes USD 1 Trillion
Bank Green Fund (February 2012 issued its first green
Strategy in August 2018
2010) bond in July 2014
Turning point in market
growth came with the first Treasury Corporation of Victoria
corporate green bonds in launched an inaugural Green Bond
November 2013. (EDF, Bank issue, first semi government agency
of America and Vasakronan) Australia to do so in July 2016
emea.nikkoam.com | 5
Changing investor appetite deepening the Green Bond market
− The significant growth that we have seen in Green Bond issuances strongly suggests a threshold market acknowledgement of the
enormous potential for these instruments
− The green bond market is growing; now USD 1tn in size. The diagram below illustrates the green bond market development
Issuance by issuer type - Evolution
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2015 2016 2017 2018 2019
Loan Sovereign Government-backed entity Local government Development bank Non-financial corporate Financial corporate ABS
Source: Climate Bonds Initiative
As at 30 June 2020
emea.nikkoam.com | 6
Paris Agreement provides long-term green opportunities
o With green bonds, fixed income investors can fulfil their
investment objectives while still making a positive impact.
o We expect green bonds to make up an increasingly larger
share of the overall global debt market and become a key
financial instrument to fund the recovery
emea.nikkoam.com | 7
Nikko AM Global Green Bond Strategy
Portfolio Approach Returns
Focused on selective green bond Actively managed using both, Over a full term market cycle, the
opportunities to create a concentrated fundamental top-down and bottom-up strategy aims to achieve
portfolio of between 15-30 holdings research, implemented through a
concentrated high conviction portfolio 1. A total return target of 3%
Market allocation to DM and EM will p.a.(gross), generally over each rolling
each be from 30% to 70% of the Evaluating both developed and 3 year period
strategy assets emerging market and forming currency
allocation decisions
AAA average credit rating
Risk management approach recognises
Aims to achieve 95%-100% invested in asymmetric nature of bond risk
green bonds controls which include both, absolute
and relative volatility
*Target return is an expected level of excess return based on certain assumptions and/or simulations taking into account the strategy’s risk components. There can be no assurance that any
stated investment objective, including target return, will be achieved and therefore should not be relied upon
emea.nikkoam.com | 8SSA Transparency
− We seek to achieve 100% green bond allocation
− SSA Issuers off more transparency due to better governance of projects compared to corporates
− Please see the list of supranational issuers:
Please note: Any non-environmental (green) bonds would be purchased from; NIB, IDB, African Development Bank, CEB, IBRD, EBRD
emea.nikkoam.com | 9Philosophy & Differentiators
We believe in employing a consistent investment process which incorporates quantitative and
qualitative inputs to generate ideas to construct a high conviction green bond portfolio, where
we get suitably rewarded for the risk we undertake
Nikko AM Differentiators:
Pure Green Exposure EM & DM Exposure AAA
Actively/dynamically managed EM/DM Invests exclusively in AAA rated SSA
Seeks to achieve 95-100% Green Bond
exposure Bonds
Exposure
emea.nikkoam.com | 10Investment Process
Screening & Research
SSA Research
− A key aspect of Issuer due diligence is the transparency the issuer provides on their green bond programme.
Additionally the quality of reporting and availability of information would be taken into account. Before investing,
Nikko AM would assess the following:
1) Clear description 2) Competent project 3) Frequent public 4) Verification of the
of the projects selection reporting project
Analyse how projects to be Full transparent process of Project description, Selection and use of funds
financed (including goals, the management of allocation of funds and from an independent third
projected impacts, proceeds environmental impacts party
sustainable development) (quantified where feasible)
principals)
emea.nikkoam.com | 11Investment Process
Screening & Research
Relative Value
Nederlandse Waterschapsbank Green Bond v Government Bond
0.6 Spread Summary
0.5 Last 39.1681
0.4 Mean 35.832
0.3 Off Avg 3.3361
0.2 Median 34.9432
0.1 StDev 4.0464
0 StDev from Mean 0.8245
-0.1 Percentile 78.5714
-0.2 High 12/06/2018 45.5828
Jul-2018 Aug-2018 Sep-2018 Oct-2018 Nov-2018 Dec-2018
Low 09/27/2018 29.1164
NEDWBK 1 09/03/25 Interpolated Govt Yield
G-Spread 25 G-Spread
225 Frequency
425 Distribution
625
48
43
41
43
39
G-Spread
37
38
35
33
33
31
28 29
Jul-2018 Aug-2018 Sep-2018 Oct-2018 Nov-2018 Dec-2018 0 2 4 6 8 10 12 14
Frequency
Source: Nikko AM, Bloomberg
(Please note: Illustrative example only)
emea.nikkoam.com | 12Investment Process
Top Down Alpha Opportunities
1) Market 2) Investment 3) Screening & 4) Portfolio
Assessment Themes Research Construction
Bottom Up
Risk Management
− Regional and Country − Regional and global − Screening process is − Portfolio Construction is
market assessment investment themes are conducted by analysts based on Investment
based on the following determined Themes and pool of
− Fundamental country
factors: − Themes are analysed in
opportunities
research key role in
1. Economic Growth the context of formulating high − Return from multiple
systematic regional conviction duration and sources; mis-pricing in
2. Inflation
market assessment yield curve calls the interest rate curve,
3. Central Bank Policy carry, roll down, and
− The portfolio managers − Results in pool of
4. Financial Markets meet regularly, to opportunities for currency appreciation
− Structured scoring to discuss information and Portfolio Manager to Portfolio built on 4 key
determine our market current market choose from factors:
assessment conditions
1. Investment Objective
2. Investment Themes
3. Investment Restrictions
4. Scaling
Portfolio built bottom-up, investment themes determined through top down market assessment
emea.nikkoam.com | 13Investment Process
Portfolio Construction (FX Overlay)
Portfolio Construction – FX Overlay
─ Theme Generation
1. Quantitative back testing
2. Fundamental assessments
─ Additionally , the Investment Team’s interaction with our Core Market and Global Credit teams support generation of our investment themes
Current EM Local Currency Investment Themes
1) Fragile 5 2) Oil Recovery 3) Commodity 4) US Decoupling
Complex
emea.nikkoam.com | 14Investment Process
Portfolio Construction
─ 4 key factors in the portfolio construction process to engineer the Global Credit portfolio:
1) Investment Objective 2) Investment Themes 3) Investment Restrictions 4) Scaling
Pool of
Opportunities
Nikko AM Global Green Bond Portfolio
1) Investment 2) Investment o Top-down and bottom-up best global ideas approach
Objective Themes
o Portfolio holdings typically: 15-30
o DM/EM Exposure: Market allocation to DM and EM will
each be from 30% to 70% of the strategy assets
o Holding Period: Approximately 3 years
Issue Portfolio FX/
Selection Construction Duration o Target Duration Limits: 3-7 Years
o % Invested in Green Bonds: 95%-100%*
o Maximum Cash: 5%
*Please note: Where green bonds are not available the team will utilise FX overlay to
allow for efficient portfolio risk management.
3) Investment 4) Scaling
Restrictions
Global Green
Bond Portfolio
*Target return is an expected level of excess return based on certain assumptions and/or simulations taking into account the strategy’s risk components.
There can be no assurance that any stated investment objective, including target return, will be achieved and therefore should not be relied upon.
emea.nikkoam.com | 15Portfolio
Portfolio Holdings
Security Currency Yield (%) Duration Maturity Quantity Market Value (Local) Market Value (USD) Base Portfolio Weight (%)
NEDER WATERSC 1% 09/03/25/EUR/ EUR 0.93% 4.84 03/09/2025 1640000 1,754,144.00 2,056,996.93 9.59%
EBRD 1.5% 13/02/2025 (USD) USD 1.44% 4.22 13/02/2025 1883000 1,960,287.02 1,960,287.02 9.15%
INTL FINANCE 8% 10/09/23/IDR/ IDR 7.32% 2.58 09/10/2023 2.5E+10 26,357,500,000.00 1,771,337.37 8.56%
EIB 2.875% 13/06/2025 (USD) USD 2.56% 4.39 13/06/2025 1618000 1,802,905.04 1,802,905.04 8.47%
IBRD 1.5% 12/07/2022 (USD) USD 1.46% 1.74 12/07/2022 1560000 1,592,679.29 1,592,679.29 7.45%
KFW 2% 09/29/22 USD 1.93% 1.95 29/09/2022 1366000 1,414,396.36 1,414,396.36 6.59%
KOMMUN 0.75% 18/05/2027 (EUR) EUR 0.70% 6.49 18/05/2027 1000000 1,073,140.00 1,258,417.60 5.88%
KFW 2% 30/11/2021 (USD) USD 1.95% 1.13 30/11/2021 1105000 1,127,870.13 1,127,870.13 5.29%
EIB 1.9% 22/01/2025 (CAD) CAD 1.79% 4.12 22/01/2025 1400000 1,476,713.76 1,105,531.54 5.17%
ASIAN DEVE 0.35% 07/16/25/EUR/ EUR 0.34% 4.76 16/07/2025 688000 714,248.58 837,563.58 3.91%
IFC 4.75% 29/04/2021 (MXN) MXN 4.67% 0.55 29/04/2021 17490000 17,430,534.00 789,578.34 3.75%
IBRD 6.75% 06/20/23/RUB/ RUB 6.33% 2.43 20/06/2023 55450000 58,031,054.44 747,810.82 3.55%
ASIAN DEVELOPM 1.875% 08/10/22 USD 1.82% 1.82 10/08/2022 700000 721,154.62 721,154.62 3.37%
IFC 1.25% 15/12/2023 (GBP) GBP 1.20% 3.12 15/12/2023 505000 522,375.03 675,326.42 3.18%
ASIA 6% 24/02/2021 (INR) INR 5.95% 0.38 24/02/2021 47000000 47,104,300.99 638,442.68 2.99%
EUROPEAN IN 2.7% 01/12/23/AUD/ AUD 2.55% 2.20 12/01/2023 747000 786,836.64 563,965.14 2.64%
IBRD 7% 07/06/2023 (ZAR) ZAR 6.42% 2.39 07/06/2023 8200000 8,755,960.00 524,937.65 2.50%
IBRD 11.75% 04/11/2020 (BRL) BRL 10.38% 0.08 04/11/2020 2390000 2,409,239.50 427,439.17 2.24%
IBRD 8.25% 04/03/2022 (TRY) TRY 8.26% 1.19 04/03/2022 3500000 3,309,866.00 429,621.18 2.11%
IBRD 5.25% 18/05/2025 (MXN) MXN 5.30% 3.93 18/05/2025 2014000 1,955,191.20 88,567.37 0.42%
Reference to individual securities does not guarantee their continued inclusion in the fund, nor constitute a recommendation to buy or sell.
Portfolio characteristics are based on the Global Green Bond Fund Class A USD shares composite and the benchmark is 50% BoAML 1-10 Yr Global Sov and 50% ELMI+.
Source Nikko AM. As at 30 September 2020.
emea.nikkoam.com | 16Portfolio
Characteristics
Fund Holdings Fund Characteristics
Top 5 Currency Overweights Fund Benchmark Relative Fund Benchmark
Singapore Dollar 10.23% 3.80% 6.43% % Invested in Emerging Markets 45.80% 50.00%
United States Dollar 26.47% 21.51% 4.96% % Investment in Developed Markets 54.20% 50.00%
United Kingdom Pound 4.32% 1.97% 2.35% % Invested in Green Bonds 96.82% N/A
Colombian Peso 2.47% 0.46% 2.01% Yield to Maturity (Gross) 1.36% 0.00%
South African Rand 2.60% 0.95% 1.65% Modified Duration (Years) 2.98 2.19
Number of Bonds 20 N/A
5 Largest Holdings
cc Fund
NEDER WATERSC 1% 09/03/25/EUR/ 9.59%
EBRD 1.5% 13/02/2025 (USD) 9.15%
INTL FINANCE 8% 10/09/23/IDR/ 8.56%
EIB 2.875% 13/06/2025 (USD) 8.47%
IBRD 1.5% 12/07/2022 (USD) 7.45%
Asset Allocations
Developed Markets Emerging Markets
30% 12%
25% 10%
20% 8%
15% 6%
10% 4%
5% 2%
0% 0%
USD
DKK
JPY
NZD
SEK
NOK
GBP
EUR
CAD
AUD
CHF
KRW
MYR
ZAR
BRL
SGD
RUB
COP
CLP
MXN
HUF
CZK
IDR
INR
TRY
THB
PLN
PHP
RON
PEN
TWD
CNY
ILS
Fund Benchmark Fund Benchmark
Reference to individual securities does not guarantee their continued inclusion in the fund, nor constitute a recommendation to buy or sell.
Portfolio characteristics are based on the Global Green Bond Fund Class A USD shares composite and the benchmark is 50% BoAML 1-10 Yr Global Sov and 50% ELMI+.
Source Nikko AM. As at 30 September 2020.
emea.nikkoam.com | 17Global Green Bond Strategy
Characteristics Annualised Rolling Returns (USD, %)
Portfolio Manager: 4.000% 3.74%
Steve Williams
3.500%
Inception (Composite):
01 March 2010 3.000%
Number of bonds: 2.500% 2.29%
15 - 30 2.15%
2.000%
Target Return^:
Total return target of 3% 1.500%
p.a.(gross) over each market
cycle, generally over each 1.000% 0.70%
rolling 3 year period 0.37%
0.500%
Target Duration:
3-7 years 0.000%
1 Year 2 Years 3 Years 5 Years Since Inception
AUM (Composite):
USD 21.4 million
Annual Gross Returns (CY, USD %) 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Global Green Bond Strategy -1.81% 5.58% -3.41% 8.28% 3.05% -12.48% -5.80% -5.27% 9.22% -0.63%
Please note: Steve Williams assumed fund management duties on 1st May 2015.
Returns are based on Nikko AM’s (hereafter referred to as the “Firm”) Global Green Bond Fund Class A USD shares composite returns. Returns are US Dollar based and are calculated gross of
advisory and management fees, custodial fees and withholding taxes, but are net of transaction costs and include reinvestment of dividends and interest. Returns in excess of one year are
annualised. Past performance does not guarantee future returns. For more details on the Firm’s compliance with GIPS, please contact Nikko Asset Management. Fund Inception Date: 25
February 2010. Source Nikko AM. As at 30 September 2020.
emea.nikkoam.com | 18Summary
− Global Green Bond Strategy relaunched in August 2018
− Intent of the Investment Team is to invest as close as possible to 100% of the Strategy in green bonds
− In situations where it is not possible to achieve access to desired green bonds on direct issues, the Investment Team will utilise FX
overlay to allow for efficient portfolio risk management (e.g. Emerging Markets)
− Pure green exposure, EM & DM allocation, AAA
− 4 step investment process, Market Assessment, Investment themes, Screening & Portfolio Construction, mirrors core investment
process of Global Fixed Income team
emea.nikkoam.com | 19Appendix
emea.nikkoam.com | 20Appendix: Contact
EMEA – Nikko Asset Management Europe Ltd German Branch
1 London Wall, London EC2Y 5AD, U.K. Tower 185, Friedrich-Ebert-Anlage 35 - 37, 60327
Tel: +44 (0) 20 7796 9866 Frankfurt am Main, Deutschland
Fax: +44 (0) 20 7796 9816 Phone: +49 (0) 69 505047 301
Email: EMEAenquiries@nikkoam.com Email: EMEAenquiries@nikkoam.com
Michael Steiner Tim Lord
Germany & Austria Middle East & Africa
Email: michael.steiner@nikkoam.com Email: tim.lord@nikkoam.com
Tel: +49 (0) 69 505060 577 Tel: +44 (0) 20 3702 1071
Clive Paine
United Kingdom & Ireland
Email: clive.paine@nikkoam.com
Tel: +44 (0) 20 3702 1043
Thomas Archer
Product Specialist – Global Fixed Income
Email: thomas.archer@nikkoam.com
Tel: +44(0) 20 3702 1026
emea.nikkoam.com | 21Important Information
Readership: This document is intended for the use of the addressee(s) only. It may not be duplicated, quoted, discussed or otherwise shared with anyone other than the addressee(s)
without the consent of Nikko AM.
Purpose: This document is for information purposes only and is not intended to be an offer, or a solicitation of an offer, to buy or sell any investments. This document should not be
regarded as investment advice. In making any investment decision, prospective investors must rely on their own examination of the merits and risks involved.
Risks and Other Important Matters: Past performance is not indicative of future results. Our investment management services relate to a variety of investments, each of which can
fluctuate in value. The value of funds and portfolios we manage may fall as well as rise, and the investor may not get back the full amount originally invested. The investment risks vary
between different types of instruments. In the case of a higher volatility funds or portfolio the loss on realization or cancellation may be very high (including total loss of investment), as
the value of such an investment may fall suddenly and substantially.
This document has been prepared and issued by Nikko AM, on the basis of publicly available information, internally developed data and other sources believed to be reliable. While
reasonable care has been taken to ensure that the information is accurate and any assumptions made or simulations used are fair and reasonable, neither Nikko AM, its affiliates, nor any
director, officer nor employee thereof, shall in any way make guarantee, representation or warranty of and be responsible for the accuracy or completeness of this document.
Any opinions expressed in this document may be subject to change without notice.
United Kingdom and rest of Europe: This document is communicated by Nikko Asset Management Europe Ltd, which is authorised and regulated in the United Kingdom by the
Financial Conduct Authority (the FCA) (FRN 122084). This document constitutes a financial promotion for the purposes of the Financial Services and Markets Act 2000 (as amended)
(FSMA) and the rules of the FCA in the United Kingdom, and is directed at professional clients as defined in the FCA Handbook of Rules and Guidance.
emea.nikkoam.com | 22Risks
Currency risk - this exists when the strategy invests in assets denominated in a different currency. A devaluation of the asset's currency
relative to the currency of the strategy will lead to a reduction in the value of the strategy.
Liquidity risk - investments that could have a lower level of liquidity due to (extreme) market conditions or issuer-specific factors and or
large redemptions of shareholders. Liquidity risk is the risk that a position in the portfolio cannot be sold, liquidated or closed at limited
cost in an adequately short time frame as required to meet liabilities of the Strategy
Counterparty risk - the possibility that the counterparty, such as brokers, clearing houses and other agents be unable to perform its
obligations due to insolvency, bankruptcy or other causes.
Operational risk - due to issues such as natural disasters, technical problems and fraud.
Derivative risk - the Strategy may use derivatives as described in the Prospectus - Objectives and Investment Policy. Use of derivatives
results in higher chances of loss due to the use of leverage, or borrowing. Derivatives allow investors to earn large returns from small
movements in the underlying asset's price. However, investors could lose large amounts if the price of the underlying assets moves
against them significantly.
Credit Risk - is the possibility that a bond issuer will fail to pay interest and principal in a timely manner
emea.nikkoam.com | 23You can also read
