Why global diversified credit?

Many pension schemes find themselves struggling to balance paying pensions with achieving the levels of portfolio growth required to reach their target funding level for their chosen endgame. We believe that allocating to our Global Diversified Credit SDG strategy can form part of the solution.

Diversified credit invests across a broader universe than traditional investment-grade credit and incorporates asset classes such as emerging market debt and high yield. In this way, we believe it can aim for a higher level of expected returns for a marginal increase in level of risk, compared to traditional cashflow-driven investing (CDI) portfolios based solely on investment-grade credit and gilts. These strategies can also complement CDI strategies looking to increase overall yield levels.

We believe that the risk and return profile of the strategy, as shown by the chart below, could present it as a potentially attractive option for schemes that would like to de-risk out of equities, but without sacrificing return potential.

global-diversified-credit-chart.png

Source: Bloomberg, LGIM. Returns are since January 2002 and expressed in USD terms, to 30 September 2023

Key risks

The value of any investment and any income taken from it is not guaranteed and can go down as well as up, and investors may get back less than the amount originally invested. The risks associated with each fund or investment strategy should be read and understood before making any investment decisions. Further information on the risks of investing is available from LGIM’s Fund Centres.

Due to the contractual nature of fixed income assets, it is generally easier to have higher conviction in their long-term returns, in comparison to other growth instruments, such as equities.

The longer time horizon of CDI portfolios also increases the focus on long-term prospects for companies, placing a heavy emphasis on responsible investment and sustainability considerations. This increases the importance of measuring the environmental, social and governance (ESG) impact of investment decisions, while aiming to minimise negative impacts and work with companies to encourage and develop positive practices that can help lead to more sustainable outcomes.

We place great emphasis on aligning our portfolios to the UN’s Sustainable Development Goals (‘SDGs’). Our Global Diversified Credit SDG strategy looks to achieve higher overall alignment to SDGs versus the benchmark.

Diversified credit: shortening the time to endgame?

We believe diversified credit (or multi-strategy credit) can be much more than just a growth class.

Woman farmer working in a rice field in Myanmar

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