Defined contribution

A flexible addition to the DC scheme tool-kit

Global Total Return Credit: A daily dealt multi-asset credit solution

5 Dec 2023

8 minutes

What is Global Total Return Credit?

  • Provides access to the best ideas1 available in the credit universe by dynamically allocating across global credit markets.
  • Broad investment universe, including specialist asset classes which are difficult to access individually.
  • Seeks to generate a smoother path of returns than traditional fixed income allocations.

What role can Global Total Return Credit play across the retirement glidepath?

DC schemes can use Global Total Return Credit (GTRC) as an all-weather credit strategy; a flexible building block across the different stages of a member’s saving journey:

Phase

Wealth accumulation

Consolidation

Pre retirement

Through retirement

DC member needs and challenges

– Investors seek to maximise wealth accumulation opportunities.
– Investors are most exposed to long-term sustainability risks, e.g., climate change.

– Growth remains a key focus, given the power of compounding returns.
– Risk considerations play a greater role as less time to recover big losses.

– In a diverse drawdown portfolio, the balance between growth and capital preservation moves to the fore.

– Focus shifts to de-risking and moving to more defensive, income-paying assets.
– Investors need to balance immediate and future income needs.

How GTRC is relevant

– Diversifying growth asset allocation into a credit strategy adds a new source of return potential, driven by income-generating assets.

– Robust integration of sustainability considerations ensures all relevant risks are considered.

– GTRC can play an increasingly important role, complementing equities and multi-asset solutions which are typically underweight credit.

– GTRC plays an important diversification role and offers differentiated return drivers to traditional fixed income, with less exposure to the risks presented by interest rate moves.

– GTRC can play a key income-generating role, as well as seeking to achieve long-term capital growth. It also takes care of difficult asset allocation decisions within fixed income.

Why does sustainability matter for DC schemes?

  • We believe the long time horizon of DC scheme members is intrinsically linked with sustainability considerations
  • DC portfolios must adapt to sustainability externalities, which we think financial markets are highly likely to price during members’ savings journeys. This is especially true for the youngest members, who have the longest savings journey ahead of them.
Sustainability within GTRC at Ninety One
  • We incorporate a robust sustainability framework into our investment decision making process, including a forward-looking net zero transition alignment evaluation for every security in the portfolio to help manage these risks.
  • We report on a range of sustainability metrics on a quarterly basis, including our proprietary ESG ratings, portfolio carbon profile, and portfolio categorisation according to our proprietary transition framework.

Demonstrating incremental progress on a pathway to net zero

 
Achieving Net Zero
0.0%
Aligned to a Net Zero Pathway
27.7%
Aligning to a Net Zero Pathway
36.2%
Committed to aligning/ has potential to transition
35.5%
Is not aligned or has low potential to transition
0.0%

Source: Ninety One as at 30 June 2023. Based on all scored portfolio holdings, excludes cash, synthetics and others.
Rebased to 100. Please note that the above should not be viewed as an indication that the fund has a non-financial outcome as part of its investment objective.

Why Ninety One’s Global Total Return Credit Fund?

01

We seek to be defensive in downturns and to capture upside consistently through the market cycle, resulting in a smoother path of returns for members through to retirement

02

Proprietary sustainability framework identifies enduring companies with well-defined approaches to navigating the transition to a low-carbon world

03

Investment process designed to identify mispricing opportunities made available by the biases and inefficiencies that influence individual asset classes

04

Daily liquidity and competitive pricing available on LGIM and Mobius DC Platforms

Investment universe

Global credit across developed and emerging markets

Investment universe wheel

Current portfolio characteristics
Yield: 8.7%
Duration: 3.3
Average rating: BBB-
Number of issuers: 161

The amount of income payable may rise or fall.

Source: Ninety One, 31 October 2023.


1 ‘Best Ideas’ represents our highest conviction ideas following an analysis of fundamentals, valuation and market price behaviour.

General risks: All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.

Specific Risks: Default: There is a risk that the issuers of fixed income investments (e.g. bonds) may not be able to meet interest payments nor repay the money they have borrowed. The worse the credit quality of the issuer, the greater the risk of default and therefore investment loss. Derivatives: The use of derivatives may increase overall risk by magnifying the effect of both gains and losses leading to large changes in value and potentially large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss. Interest rate: The value of fixed income investments (e.g. bonds) tends to decrease when interest rates rise. Liquidity: There may be insufficient buyers or sellers of particular investments giving rise to delays in trading and being able to make settlements, and/or large fluctuations in value. This may lead to larger financial losses than might be anticipated. Government securities exposure: The Fund may invest more than 35% of its assets in securities issued or guaranteed by a permitted sovereign entity, as defined in the definitions section of the und’s prospectus.

Investment team

Jeff Boswell
Portfolio Manager
Darpan Harar
Portfolio Manager

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

All rights reserved. Issued by Ninety One.