Franklin Templeton is launching the multi-sector Article 8 Brandywine Global Multi-Sector Impact Fund, a Legg Mason Global Funds sub-fund.
The new impact bond fund is built on sub-adviser Brandywine Global’s existing multi-sector investment framework.
It is designed to invest in the transition to a sustainable and equitable economy, targeting debt issuers with the potential to “materially improve their environmental and social practices”.
The fund’s strategy emphasises dynamic sector rotation, downside risk management, a dual approach to macroeconomic and fundamental research and a focus on fixed income active ownership.
The Ireland-domiciled fund is available in the UK, Ireland, Germany and Italy and will also be registered in Switzerland in the coming weeks.
William Vaughan, associate portfolio manager, Brandywine Global Multi-Sector Impact Fund, said: “Rather than excluding whole industries from our investment universe, this fund aims to provide capital and expert guidance to those issuers most in need of improvement in areas like biodiversity preservation, workforce equity and safety and renewable power.
“Consequently, we expect a substantial portion of the impact from our portfolio will come from active engagement with companies in industries that may be overlooked by other Article 8 and 9 funds”.
According to Vaughan, the largest sources of alpha will come from sector rotation and duration and quality management, in addition to potential spread tightening as ESG risks reduce.
The broader strategy seeks to identify issuers with the greatest potential to improve their social and environmental characteristics. This includes companies just beginning to engage with this issue and those already making substantial progress.
The portfolio management team will set issuer-specific key performance indicators to target and measure sustainability progress and the effectiveness of their engagements.
A holding will be divested if a particular metric does not reflect improvement or an issuer has not implemented a policy to address existing sustainability risk.
Jaspal Sagger, head of global product strategy, Franklin Templeton, said the speed of fixed income innovation following the introduction of SFDR had not kept pace with developments in the equities space.
“While we have seen tremendous product development activity since SFDR came into force last year, innovation has not addressed the full range of client sustainability preferences and motives, particularly in fixed income.
“Many of our clients have conveyed an interest in funding the transition to a more sustainable world, so we are delighted to bring to market a new fund that has been explicitly designed to deliver measurable impact through engaging with companies on their sustainability journey,” he said.
Article 8 funds seek to promote ESG characteristics, while Article 9 funds contain bespoke sustainable investments.
In recent months, many Article 9 funds have been downgraded to Article 8 on the back of regulatory confusion.
Amundi, BlackRock, AXA, and Pimco, amongst others, have downgraded SFDR-aligned funds in recent months after the bar to qualify as an Article 9 product was raised following new EU sustainability rules.
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