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GLS Bank Rentenfonds – Why invest in sustainable bond funds now?
Date:
16. April 2024
Following the interest rate increase last year, bond funds have once again become an attractive investment class. In November 2023, GLS Investments launched the GLS Bank Rentenfonds. This fund aims to allow investors to benefit from the GLS sustainability approach, while also taking advantage of the economic
opportunities offered by the shift in interest rates. Serving as the bond counterpart to the company’s flagship fund– the GLS Bank Aktienfonds – the fund’s launch shows promise. We spoke with Portfolio Advisor Daniel Fuchs about the new fund.
Daniel Fuchs: Indeed, it was an opportune moment. Since July 2022, central banks have rapidly increased key interest rates to control rising inflation. Experts concur that we have now passed the peak of inflation and that central banks are likely to start reducing interest rates sometime this year. Along with key interest rates, yields on bonds in bond funds have also increased. Therefore, even if inflation proves to be more persistent than anticipated and interest rates remain elevated for an extended period, investors can still realise significant returns.
When we launched the GLS Bank Rentenfonds AK A (ISIN DE000A3ERMZ0) / GLS Bank Rentenfonds AK B (DE000A3ERM02) in November, we were able to equip the initial portfolio with many attractively yielding bonds. Currently, the fund has a quota of more than 40 percent in new issues—an existing fund usually cannot reallocate its portfolio as swiftly.
This advantage applies to all newly established bond funds. But what sets the GLS Bank Rentenfonds apart?
The GLS Bank Rentenfonds comprises bonds from the entire GLS investment universe. This includes both fixed and variable interest securities from international companies, governments, and quasi-government issuers, including supranational organisations, as well as environmental and social bonds, known as Green, Social and Sustainability bonds.
All these securities have passed a multi-dimensional, integrated selection process. Therefore, the GLS Bank Rentenfonds invests exclusively in forward-looking, social, and ecological sectors, such as renewable energy or education and culture, as well as companies with sustainable corporate governance. It excludes, among other things, weapons, coal, tobacco, gambling, child labour, animal testing, and intensive livestock farming.
Is merely being sustainable according to GLS criteria enough for an issuer to be included in the GLS investment universe?
No, we have established our own internal evaluation process for bond issuance, which is based on several stages. During this assessment, it is vital that both the issuer and the bond are sustainable and meet our strict standards. That is why our in-house sustainability analysts rigorously assess compliance with specific standards on both counts.
Due to the popularity of green, social and sustainable bonds in the market, swift action is often required, leaving little time for detailed analysis. How do you verify your decisions?
All new issues of green, social and sustainable bonds from issuers not yet in our investment universe are validated again by our GLS Investment Committee afterwards. This committee is a decision-making body of sustainability experts that convenes multiple times a year to closely examine whether we have made the correct decisions. This offers an additional layer of confidence to us and our investors that our investments are in line with our understanding of sustainability.
Hence, the high sustainability standard is guaranteed. What is the fund’s economic outlook?
Before investing, we carefully evaluate each bond issuer for economic metrics, business model, and business outlook. Many issuers channel the proceeds from bonds to advancing transitions in energy, food, or mobility, thereby driving the sustainable transformation of our economy.
We believe that the securities in our portfolio will not only benefit from economic opportunities, but are also better positioned to adapt to
evolving regulatory or environmental conditions. Over the long term, companies that generate profits with environmentally harmful technologies will see their right to operate in the market diminish, as they face higher socio-ecological costs, for example from new regulatory requirements. The future-proof investment approach of the GLS Bank Rentenfonds lowers the portfolio's risk profile, enabling us to compile a portfolio of high-quality bonds.
A summary of your investor rights can be found at www.universal-investment.com/en/Corporate/Compliance/Investor-Rights. In addition, we would like to point out that Universal Investment may, in the case of funds for which it has made arrangements as management company for the distribution of fund units in other EU member states, decide to cancel these arrangements in accordance with Article 93a of Directive 2009/65/EC and Article 32a of Directive 2011/61/EU, i.e. in particular by making a blanket offer to repurchase or redeem all corresponding units held by investors in the relevant member state.
An investment in a Fund is a risky investment and investors in the Fund may suffer a loss in value up to an amount equivalent to a total loss of the entire capital invested in the Shares in the Fund. Accordingly, potential investors should have adequate and sufficient liquidity to economically bear a total loss of their investment in the Fund. When deciding to invest in the advertised fund, the investor should also take into account the sustainability aspects regarding the characteristics or objectives of the advertised fund as set out in the prospectus. Further information on the sustainability aspects of the fund can be found in the web document, the sales prospectus and the pre-contractual product information. This can be found at: https://fondsfinder.universal-investment.com/en/DE/Funds/DE000A3ERMZ0/downloads.