OP-EMD Hard Currency Corporate IG

OP-EMD Hard Currency Corporate IG offers an opportunity to participate in USD-denominated bonds issued by companies with high credit ratings and domiciled in emerging economies. The fund's investments are widely diversified on a global scale, the main target markets including Latin America, Asia and the Middle East. Hard Currency refers to the fact that the fund invests in bonds denominated in Western currencies, which protects it from the exchange rate risk of developing countries’ currencies. IG refers to “investment grade”, i.e. the high creditworthiness of the investees.

The emerging fixed-income market is also an asset class which can be used to diversify one's investment portfolio. A fund unit is subject to a relatively low price volatility risk. In terms of interest rate risk, the fund is on a par with long-term bond funds since the emphasis of the investments is on long-term fixed-income products. A rise in interest rates has a negative effect on the fund's value. Those considering this fund should also note that changes in emerging countries' economic developments also have an impact on the fund's value through credit risk premiums. This fund is chiefly recommended to an investor who intends to redeem his/her units after four years at the earliest.

OP-EMD Hard Currency Corporate IG (Fund) is a long-term bond fund that mainly invests in USD-denominated bonds issued by sufficiently creditworthy companies domiciled in emerging markets. At least 90% of the Fund’s assets are invested in securities whose issuers have a long-term credit rating of at least BBB- or comparable.

The Fund may use derivative instruments in its investment operations. The underlying asset of such derivative contracts may be interest rates, currencies or credit risks. The modified duration of the Fund, a measure of the price sensitivity of a fixed-income investment to interest rate movements, is typically 3–6, which means that the Fund value will decrease by 3–6 percent if interest rates increase by one percentage point. If interest rates fall, the Fund’s value increases correspondingly.

The Fund invests in various markets on a global scale and its main target markets are Latin America, Asia, Eastern Europe,Africa and the Middle East.

The emphasis of the investments is typically on long-term fixedincome products, so in terms of interest rate risk the Fund is on a par with long-term bond funds. 

The Fund aims to favour fixed-income instruments issued in the currencies of developed economies (so-called hard currency), particularly the U.S. dollar. Since the Fund hedges currency risk exposure against the euro, currency movements against the euro of, for example, emerging economies’ currencies or the dollar do not affect the Fund’s value performance.

The Fund’s benchmark index is JPMorgan CEMBI Broad Diversified – IG. With active investing, the Fund seeks to outperform its benchmark index in the long term. The Fund mainly takes notable active risk and it may differ significantly from the composition, weights and risk level of the benchmark index.

The Fund promotes environmental and social characteristics and, to ensure it, uses environmental, social and governance (ESG) analysis and excludes certain investments. 

Exclusion: The Fund excludes from its active direct investments controversial weapon manufacturers, mining companies producing thermal coal, power companies using thermal coal, tobacco companies, and companies that have breached international standards and where engagement has been unsuccessful.  The list of exclusions is public. In addition to general exclusion rules, the Fund does not invest in companies whose principal business is in unconventional oil and gas extraction.

Use of ESG data in the investment analysis: ESG factors are considered in the investment process with the help of data by an external ESG service provider and the ESG tool developed internally by OP Asset Management. Considering ESG factors in the investment process means, for example, that the risks and opportunities related to the environment, society and governance are made transparent using selected indicators from each area. 

Violations of international standards: The Fund is screened regularly for non-compliances with international standards. In the event that a non-compliance is detected, an influencing process is begun with the company in question. The aim is to make non-compliant companies change their practices and begin to comply with international standards in their operations. If influencing proves fruitless, the company may be removed from the Fund portfolio and placed on the exclusion list.

Minimum share of sustainable investments: In accordance with the minimum amount stated below, the Fund allocates investments into companies whose business promotes one or more UN Sustainable Development Goals (SDG) without harming other sustainability factors or objectives. Sustainable investments are determined using OP Asset Management’s analysis model which is based on an external service provider’s SDG and sustainability data.

Assessing good governance practices: Analysing the target company’s governance is an important part of the investment process. To us, good governance is a key foundation for any company’s financial success, regardless of sector. When assessing governance, some of the areas considered include the appropriateness of the target company’s administrative organisation, the target company’s actions in relation to its personnel, and the target company’s rewarding and taxation practices. In assessing good governance, we use the analysis of third-party service providers and our own qualitative analysis if no external data is available. We screen the funds regularly to check them against the criteria of good governance. Minimum limits apply for these criteria. 

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