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Portfolio analysis

Performance review of FIONA portfolios: Q1 2023

Written by Josephine Richardson & Johan Jarnmo

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We have used our Fixed Income Optimisation for Net zero Alignment (FIONA) framework to analyse the climate impact of the LQD portfolio and create two parallel portfolios with improved climate impact.

This note analyses the relative performance of FIONA portfolios during Q1 and leads to the following observations for environmentally minded fixed income investors.

Firstly, despite a volatile market, correlation between returns of the portfolios was very high with immaterial impact on performance. Tracking errors for these climate-aligned portfolios continues to be low.

Given the significantly reduced carbon footprint of FIONA portfolios, we encourage investors to consider these strategies as a free option to protect against climate-related asset-price volatility in the future.

Secondly, the sector-free Case 2 FIONA portfolio underperformed slightly. This was driven by poor Q1 performance of ‘low-carbon’ sectors such as healthcare combined with strong performance in the financial sector. Lastly, the sector-fixed Case 1 FIONA portfolio outperformed even more slightly. This was driven by intra-sector relative outperformance of stronger climate names in consumer staples, financials and industrials.

About the authors

Josephine Richardson

Josephine Richardson

Managing Director, Head of Research

Based in London, Jo leads AFII’s research and a global team supporting fixed income investors as they align their portfolios with climate and sustainability goals. She joined AFII after 18 years in fixed income markets at JPMorgan.

Johan Jarnmo

Johan Jarnmo

Associate Director, Portfolio Strategy

Johan develops tools and analytics that help fixed income investors invest in a climate- and nature-positive way, including AFII’s portfolio tools Co₂liseum and FIONA. He previously worked in Deloitte’s Risk Advisory practice.

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