What do you think of when you hear the words ‘sustainability’ or ‘being green’? Does it conjure images of long-haired hippy-types wearing brown sandals and hugging trees? Saving polar bears? Or recycling Coke cans and yoghurt pots? Environmental issues are often misunderstood and seen as someone else’s problem. Worse, they are even ignored and considered to be irrelevant to modern business.
There is a new breed of bond in the fixed income world. It’s different, it’s bold, it’s the so-called green bond market. As the drive towards environmental, social and governance (ESG) investing continues to gather pace, policy makers and investors alike are waking up to the importance – and benefits – of green bond investing.
Institutional investors in the UK and other developed markets are finally beginning to wake up to a truth that their counterparts in US, Germany and the Netherlands have long known: residential property is an attractive source of income that complements commercial property beautifully.
The bedrock of the appeal of residential is the shortfall of homes across most of Europe. Even if populations stay stable, there is already huge under-supply as a result of low development and this is exaggerated by the total number of homes required is growing, because the number of households is increasing: people are more likely to live alone and less likely have large families. In Germany, for example, the population has increased by only 12% since 1961, but the number of households has risen by 110%. Housing supply is notoriously unresponsive to changes in demand – certainly much less so than commercial property. Because of planning restrictions, particularly in countries in Europe with a strong tradition of preserving green open spaces, residential does not work like a free market. This supply constraint buoys rental incomes and, indeed, values.
Here’s an asset class that continues to defy the odds. Despite concerns of high debt levels, growing geopolitical risks and sluggish global growth, emerging markets (EM) corporate debt has once again delivered another year of impressive results.
This year sees a continuation of many of the same challenges, not least the uncertainty over what Donald Trump’s US presidency will look like. Anyone hoping that Trump’s campaign promises were just talk won’t have been overly encouraged by his first week in the White House. The Republican has already signed two proclamations, seven executive orders and seven presidential memoranda. His decision to ban the entry of citizens from seven predominantly Muslim countries has ruffled more than a few international feathers, while his pledge to renounce the Trans-Pacific Partnership (TPP) trade deal – a signature policy of Obama – has also raised eyebrows.
Recent years have seen strong growth trends in the European corporate debt markets. This has provided a solid base for EHY to grow, becoming increasingly diversified with improved overall credit quality. Rather unsurprisingly, it is more appealing to investors as a result. With two full credit cycles since the late 1990’s behind it, the EHY sector is now an integral part of the global leveraged finance market. It may still be perceived as the smaller sibling of US High Yield, but that masks how fast it is growing and maturing.
For those that invest with the aim of generating an income, the last year provided a unique set of challenges.
Pension funds and institutional investors have for some time been allocating to alternative investments, including private equity, to seek additional returns and diversification. This is welcome progress…
Sustainable future means helping citizens achieve the best income in retirement on a sustainable basis.
