Fixed income innovation: applying ESG and carry factors to an emerging markets portfolio

Attitude towards market change has been slow historically but the evolution of ESG portfolios has been an exception. The need for a new generation of ESG fixed income indices is already changing the fixed income landscape and will increase as investor priorities continue to evolve. This paper looks at how we intend to adapt our existing passive, market-weight indices to meet this rapidly changing dynamic. 

We believe applying factors to traditional fixed income indices will be more valuable in the future than it has been in the past. Since 2009 quantitative easing (‘QE’) and easy-money has resulted in a bull-market, low default, high correlation fixed income world. In this world, traditionally based analyst research and fundamental asset selection has not been as successful as a leveraged, high-beta, lower quality approach. With rates rising and QE unwinding, these macro supports are gone and there is likely to be more portfolio performance differentiation in the years ahead.

You can now read the full whitepaper at the link below