This article first appeared in The Edge Malaysia Weekly on December 12, 2022 - December 18, 2022

The Affin Hwang SGD Bond MYR fund clinched a whopping four awards at The Edge Malaysia ESG Awards 2022. The fund, which invests in SGD-denominated bonds, won the gold award in the best S (social) fund category. It also bagged the silver award in the best fixed income fund category, the best E (environmental) fund category, and the best G (governance) fund category.

“Our investment philosophy is underpinned by an absolute return mindset and a clear focus on fundamentals overlaid with macro-awareness. The primary ESG investing strategy of this fund is based on negative exclusion. This means we prohibit investments in ESG-unfriendly sectors such as coal mining, tobacco and military weapons,” says Esther Teo, senior director of fixed income at AHAM Capital (formerly known as Affin Hwang Asset Management).

“The excluded sectors or business activities have significant exposure to climate transition risk, structural changes to consumer behaviours, regulatory interventions as well as other issues. These risk factors have a material impact on the sustainability of these companies’ business models and their long-term financial performance.”

Launched in February 2021, the Affin Hwang SGD Bond fund holds government and corporate bonds. Bonds are selected based on the issuers’ ability to meet their financial obligations, their cash flow, type of collateral, value, claims priority as well as timely payment of interest and principal.

“Incorporating a negative exclusion strategy does not mean that portfolio returns are compromised. We believe that pairing material ESG risk assessment with traditional financial analysis helps to deliver better risk-adjusted returns in the long run,” adds Teo.

The SGD-bond market is seen as a safe harbour in times of heightened geopolitical tensions and volatile markets. While Teo is cautious about the global macroeconomic environment, she expects a resumption in bond market activity led by corporates that have strong ESG practices.

“In 2022, ESG equity and bond [funds] were not spared from the massive outflow of funds seen across global assets. Market volatility was at a historical high and investors were generally cautious and stayed largely on the sidelines. During the year, we remained steadfast in our credit selection for the winning fund and kept its portfolio exposure to high-quality issuers. We also reduced the duration held to reduce the fund’s exposure to interest rate volatility,” says Teo. 

She believes that investors are increasingly aware of ESG issues and looking for investments aligned with their personal values and preferences. Popular ESG investment themes include climate change, renewable energy, and sustainable, future-proof industries. 

“As an asset manager, we are pleased to serve our clients with solutions such as the Affin Hwang SGD Bond. This fund looks to provide a steady income stream by investing in high-quality fixed income securities while applying an exclusion strategy to avoid ESG-unfriendly sectors,” says Teo.

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