PI Partnership – Jupiter Asset Management
GREEN BONDS: IN SEARCH OF DISPERSION
Rhys Petheram is a fund manager and head of environmental solutions at Jupiter Asset Management
Dispersion is an active manager’s best friend. For sustainably- focussed fixed income funds, dispersion can take the form of financial valuations, as well as the varied sustainability impact of different investment vehicles and issuers. There is a high degree of dispersion in the labelled green bond market with regards to green bond framework quality, whilst significantly less dispersion was evident in 2021 credit valuations. With volatility returning in 2022, Rhys Petheram examines dispersion in the green bond market; the investment opportu- nities this presents; how it compares to the broader market and whether it is a feature of green bond premiums.
Credit valuation dispersion (BBB corporate bonds) 120 100 80 60 40 20 0
31.12.2021 Green Corporate Bond (BBB) 22.04.2022
All Corporate Bond (BBB) Source: Jupiter, Bloomberg 22.04.22¹
Entering 2022 dispersion within credit markets, including green bonds, was tight. However, the Russia-Ukraine war and global supply chain problems have subsequently created a more challenging backdrop, while tightening financial condi- tions and growing risks of policy error provide for an uncertain outlook. With investors consequently taking a more discerning approach to credit selection, this brings opportunities. Credit spreads have increased along with levels of dispersions in green bond markets.
Dispersion of the premium paid in the secondary market for green bonds (the “greenium”) has also increased, reflecting shifting supply and demand.
24 June 2022 portfolio institutional roundtable: Sustainable debt
Difference between 20th and 80th percentile credit spread
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