Fixed Income

Setting a benchmark can help individual investors understand the specific types of investments a strategy will make and provide a means of measuring its performance versus the wider market.  

While benchmarks can provide a good indicator of the sectors, regions, or credit ratings included in the portfolio, an active approach doesn't simply replicate the benchmark in the portfolio. Instead, it uses the managers' knowledge and skill to build a selective portfolio of the most attractive opportunities within the benchmark, with the aim of adding value on top of the benchmark’s performance – referred to as an 'active return'.  

Our strategies aim to outperform their benchmarks within a 'tracking error budget'. This means the level of active return we aim for is relative to a target level of active risk. 

For strategies which are not measured against a benchmark the focus is on aiming to deliver attractive risk-adjusted by using greater flexibility to navigate market movements without reference to an index.   

Why investment grade credit? 

Investment grade credit lets you invest in the debt of companies that are considered by external rating agencies as relatively less likely to default on their loans. Also, they tend to offer higher rates of interest than government bonds. 

Our strategy 

We combine deep, local market expertise with top-down, macroeconomic research to create a robust, repeatable investment process that's been tested throughout the credit cycle. Our portfolio managers have access to all this research, and the expertise of our trading and engineering teams. 

Why Inflation-linked bonds? 

Over time, rising prices can erode the value of savings and investments. Inflation-linked bonds are fixed income securities aiming to limit the impact of inflation on investors’ capital by linking the bond's principal and interest payments to a measure of inflation.  

Our strategy 

• A global team: we have a dedicated, highly experienced team, closely supported by our fixed income teams. 
• A suite of solutions: our range of strategies include single market, global, and customised inflation-linked bonds. 
• Access to market insights and liquidity: our significant size – over €14bn in inflation-linked assets under management globally [3] provides us with access to liquidity, along with market insights.

Why short duration bonds? 

Traditionally, savers tended to look at two areas for low risk sources of income: interest rates on cash deposits in the bank, or bonds issued by the most credit-worthy governments. Today, neither provides much in terms of income.  

Short duration strategies are an attractive alternative, as they offer a potential route to higher yields and can be viewed as a first step into credit markets for more cautious investors. 

Our strategy 

We generally invest in bonds with maturities of five years or less and seek to capture high current income with low overall volatility. 

Our active flexible fixed income strategies have the freedom to respond to market environments, rather than following a benchmark. This allows us to put the focus aiming to achieve a return target for a given level of risk. 

Why flexible bonds? 

Fixed income comprises a variety of sub-asset classes, and different bonds can have different performance and risk drivers. The performance of each sub-asset class is correlated to a different part of the economic cycle, which is in constant motion.  

An active, unconstrained approach can have the flexibility to use dynamic asset allocation, and effective diversification, to try to capture different performance drivers at the right time, while managing the associated risks. 

Our strategy 

We aim to deliver portfolio performance with a low correlation to both interest rate and credit risk. We avoid benchmark allocations – instead, we invest across defined risk buckets and seek returns from a diverse set of fixed income strategies. 

Why sustainable investing? 

At AXA IM, we believe investing responsibly goes hand-in-hand with our fiduciary duty to clients. We strive to look out for the long-term interests of our clients by guiding companies towards more responsible behaviour and investing in those that meet the conditions for sustainable growth.  

We believe a focus on sustainable investing helps us make better investment decisions and can be a means by which we can help accelerate the transition to a more sustainable world. Companies are having to adapt to their customers’ higher expectations around sustainable practices, which is backed by governmental and regulatory support to incorporate sustainability measures into company information.  

Our strategy 

Our Sustainable strategies embed sustainability factors into portfolio construction and use responsible investing analysis to refine and enhance the asset class universe.  

Why impact investing? 

Impact investing looks for more from their investments, namely companies providing innovative products and services which are directly positively contributing to the environment or society. 

Our strategy 

Our green bonds strategy aims to deliver investment returns with low volatility, while supporting the transition to a low-carbon economy. AXA IM has developed a proprietary green bond assessment framework⁵ . We built on this to create new frameworks for social and sustainability⁶  bonds. These are very similar in terms of structure, but some aspects differ due to the specificities of social and sustainability bonds. This approach is stringent, but it is also continuously evolving and aims to fulfil three main objectives:  

• Driving investments towards authentic and impactful green assets⁷  and social projects  
• Raising the integrity and transparency standards of the Green, Social and Sustainability bonds (“GSSB”) market⁸  
• Ensuring that GSSB issuers are committed to fight climate change and to address sustainability challenges, and that this commitment is reflected in business practices and operations  

Selectivity is key in finding the most relevant and impactful green and social projects receive the necessary financing across four key areas: smart energy, green buildings, low carbon transportation and sustainable ecosystems. 

In the late 2000s, Liability Driven Investment (LDI) mandates became a popular solution for institutional investors. LDI, at its most simple level, is about hedging assets and liabilities, and controlling the volatility of the portfolio on a day to day basis. 

More recently, Cashflow Driven Investment (CDI) mandates have risen to prominence as a complement to LDI solutions by meeting institutions’ cashflow requirements. CDI is a more forward-looking and long-term approach that seeks to help clients increase their ability to meet their future cashflow requirements and funding objectives. 

Why solutions? 

Effectively managing cashflow challenges amid ever-decreasing liquidity in credit markets and rising transaction costs is becoming increasingly vital.

A successful CDI strategy is one that aims to generate cashflows through selecting assets like high quality corporate bonds that can provide contractual income in-line with the expected cashflow requirements. 

Our strategy 

Our solutions team works to provide strategic advice, portfolio management expertise and cost-effective implementation. 

At the core of our cashflow driven investing solutions is our long-term Buy and Maintain credit approach, designed to potentially increase cashflows. 

Why buy & maintain? 

Buy and Maintain strategies offer a diversified, high quality and cost-effective access to the investment grade credit market and unlike a passive bond approach, these strategies are not tied to a benchmark.  This provides the flexibility to build a highly diversified portfolio that is designed to provide downside risk mitigation throughout the market cycle while still aiming to capture credit returns through relative value opportunities.  

Our strategy 

Our fundamental investment approach is based on credit analysis and a focus on long-term trends. We aim to select high quality bonds which can be held to maturity. While we're always ready to trade in order to preserve value when faced with severe credit concerns, we aim to avoid unnecessary turnover and limit transaction costs to minimise eroding long-term performance. 

There is a natural alignment between the time period over which climate risks and opportunities will materialise and the timeframe over which these strategies invest. For this reason, climate change is a key consideration with our Buy and Maintain strategies and it is integrated in the investment process.