September 30, 2024
Capital Group Multi-Sector Income Fund (LUX)
A multi-sector approach for reliable income
Latest shareholder notices
September 30, 2024
© 2024 Morningstar. All rights reserved.
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Results
The information in relation to the index is provided for context and illustration only. The fund is actively managed. It is not managed in reference to a benchmark.
Past results are not a guarantee of future results.
Price & Distributions
Portfolio
Risk Considerations
Risk factors you should consider before investing:
- This material is not intended to provide investment advice or be considered a personal recommendation.
- The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
- If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
- Some portfolios may invest in financial derivative instruments for investment purposes, hedging and/or efficient portfolio management.
- There are additional ABS/MBS, Bonds, Counterparty, Derivative instruments, Emerging markets, High yield bonds, Liquidity, Operational and Sustainability risks associated with this fund.
Fund risks
ABS/MBS risk: The fund may invest in mortgage- or asset-backed securities. The underlying borrowers of these securities may not be able to pay back the full amount that they owe, which may result in losses to the fund.
Bonds risk: The value of bonds can change as a result of interest rate changes – typically when interest rates rise, bond values fall. Funds investing in bonds are exposed to credit risk. A decline in the financial health of an issuer could cause the value of its bonds to fall or become worthless.
Counterparty risk: Other financial institutions provide services to the fund such as safekeeping of assets, or may serve as a counterparty to financial contracts such as derivatives. There is a risk the counterparty will not meet their obligations.
Derivative instruments risk: Derivatives are financial instruments deriving their value from an underlying asset and may be used to hedge existing exposures or to gain economic exposure. A derivative instrument may not perform as expected, may create losses greater than the cost of the derivative and may result in losses to the fund.
Emerging markets risk: Investments in emerging markets are generally more sensitive to risk events such as changes in the economic, political, fiscal and legal environment.
High yield bonds risk: Lower rated or unrated debt securities, including high yield bonds, may, as a result, be subject to liquidity, volatility, default and counterparty risk.
Liquidity risk: In stressed market conditions, certain securities held by the fund may not be able to be sold at full value, or at all. This could cause the fund to defer or suspend redemptions of its shares, meaning investors may not have immediate access to their investment.
Operational risk: The risk of potential loss resulting from inadequate or failed internal processes, people and systems or from external events.
Sustainability risk: Environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of an investment of the fund.
Resources
Sustainability-related disclosures
Statement on principal adverse impacts of investment decisions on sustainability factors
Date
This information is valid as of 15 December 2023.
Summary
This Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment.
The Fund aims to manage a carbon footprint (weighted average intensity) for its investments in corporate issuers that is generally at least 30% lower than 45% Bloomberg US Corporate High Yield 2% Issuer Capped Index, 30% Bloomberg US Corporate Index, 15% JPMorgan EMBI Global Diversified Index, 8% Bloomberg Non-Agency CMBS Ex AAA Index, 2% Bloomberg ABS Ex AAA Index. While this Fund is actively managed and without any reference or constraints to a reference index, the Fund is using these indexes to monitor the investment’s carbon emission. The Investment Adviser relies on carbon footprint data from a third party provider to carry out ongoing monitoring of weighted average carbon intensity (WACI) at the fund level, and may reduce or eliminate exposures to certain companies as necessary.
The Investment Adviser evaluates and applies ESG and norms-based screening to implement exclusions on corporate and sovereign issuers, with respect to certain sectors such as fossil fuel and weapons. To support this screening, for sovereign issuers, the Investment Adviser relies on the use of proprietary research. The Investment Adviser leverages data from third party institutions to calculate ESG scores across the entire sovereign universe. This assessment highlights indicators related to vulnerability to climate change, dimensions of human development, and various measures of governance. Data for each issuer is analysed to compute composite sovereign ESG performance scores. Sovereign issuers that are considered to be poor performing outliers are excluded from the Fund’s investment universe.
For corporate issuers, the Investment Adviser relies on third party provider(s) who identify an issuer’s participation in or the revenue which they derive from activities that are inconsistent with the values and norms-based screens. In the event that exclusions cannot be verified through the third party provider(s), the Investment Adviser will aim to identify business involvement activities through its own assessment.
The Negative Screening Policy applied by the Investment Adviser can be found on:
https://www.capitalgroup.com/content/dam/cgc/tenants/eacg/negative-screening-policy.pdf
The Fund promotes, among other characteristics, environmental and social characteristics, provided that the companies in which investments are made follow good governance practices. Good governance practices are evaluated as part of the Investment Adviser’s eligibility process. Such practices are assessed through a monitoring process. Where relevant, fundamental analysis of a range of metrics that cover auditing practices, board composition, and executive compensation, among others, is also conducted.
Information on Capital Group’s corporate governance principles can be also found in its Proxy Voting Procedures and Principles. The ESG Policy Statement provides additional detail on Capital Group’s views on specific ESG issues, including ethical conduct, disclosures and corporate governance, available on:
https://www.capitalgroup.com/content/dam/cgc/tenants/eacg/esg/files/esg-policy-statement(en).pdf
The Fund’s carbon constraint does not apply to the entire portfolio, and will only apply to corporate issuers that have carbon emissions data available (reported or estimated). The Capital Group's ESG Negative Screening Policy will apply to the entire portfolio, except for cash and derivatives. The planned asset allocation is monitored continuously and evaluated on a yearly basis.
To measure the attainment of the environmental and/or social characteristics promoted, the Fund considers the following principal adverse impacts (PAIs) on sustainability factors:
- Principal Adverse Impact 1 on greenhouse gas emissions.
- Principal Adverse Impact 4 on exposure to companies active in the fossil fuel sector.
- Principal Adverse Impact 10 on United Nations Global Compact violators.
- Principal Adverse Impact 14 on controversial weapons.
Exclusions are primarily identified through a third-party provider, MSCI ESG Business Involvement Screening Research (“MSCI ESG”). Other data points include the MSCI United Nations Global Compact and MSCI Carbon Footprint Metrics.
The methodology and sources relating to the exclusions and the ESG integration approach as a whole have certain limitations. When assessing the ESG characteristics of securities and the selection of such securities, subjective judgement within the investment process might be involved. The carbon footprint is measured by the WACI score relative to the relevant index. Excluded from the WACI determination are cash holdings, derivatives, sovereigns and securitised products.
Members of Capital Group's compliance, risk management and internal audit staff conduct periodic assessments on the design and operating effectiveness of the firm’s ESG activities and key controls. Establishing dialogue with companies is an integral part of the Investment Adviser’s investment management service to clients. This enables the company to engage and generate dialogue on any issues that could affect the company’s long-term prospects, including exposures to sustainability issues.
The Fund has not designated a reference benchmark to meet the environmental and/or social characteristics it promotes.
No sustainable investment objective
This Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment.
Environmental or social characteristics of the financial product
The environmental and/or social characteristics promoted by the Fund are the following:
- The Fund aims to manage a carbon footprint (weighted average intensity) for its investments in corporate issuers that is generally at least 30% lower 45% Bloomberg US Corporate High Yield 2% Issuer Capped Index, 30% Bloomberg US Corporate Index, 15% JPMorgan EMBI Global Diversified Index, 8% Bloomberg Non-Agency CMBS Ex AAA Index, 2% Bloomberg ABS Ex AAA Index. This will not apply to sovereign issuers. In managing to this constraint, the Fund is considering Principal Adverse Impact 1 on greenhouse gas emissions.
- The Fund evaluates and applies ESG and norms-based screening to implement exclusions on corporate and sovereign issuers. In applying these screens, the Fund is considering the Principal Adverse Impact 4 on exposure to companies active in the fossil fuel sector, Principal Adverse 10 on United Nations Global Compact violators and Principal Adverse Impact 14 on controversial weapons. These principal adverse impacts will not apply to sovereign issuers.
The Investment Adviser can select investments to the extent they do not trigger a breach of the carbon target and are in line with the Negative Screening Policy.
There is no reference benchmark designated for the purpose of attaining the environmental or social characteristics promoted by the Fund.
Investment strategy
The Fund aims to manage a carbon footprint (weighted average intensity) for its investments in corporate issuers that is generally at least 30% lower than 45% Bloomberg US Corporate High Yield 2% Issuer Capped Index, 30% Bloomberg US Corporate Index, 15% JPMorgan EMBI Global Diversified Index, 8% Bloomberg Non-Agency CMBS Ex AAA Index, 2% Bloomberg ABS Ex AAA Index. This will not apply to sovereign issuers. While the Fund is actively managed and without any reference or constraints to a reference index, the Fund is using these indexes to monitor the investment's carbon emission. The Investment Adviser relies on third party data to carry out ongoing monitoring of WACI at the fund level and may reduce or eliminate exposures to certain companies as necessary.
The Investment Adviser evaluates and applies ESG and norms-based screening to implement exclusions on corporate and sovereign issuers, with respect to certain sectors such as fossil fuel and weapons.
To support this screening, for sovereign issuers, the Investment Adviser relies on the use of proprietary research. The Investment Adviser leverages data from third party institutions to calculate ESG scores across the entire sovereign universe. This assessment highlights indicators related to vulnerability to climate change, dimensions of human development, and various measures of governance. Data for each issuer is analysed to compute composite sovereign ESG performance scores. Sovereign issuers that are considered to be poor performing outliers are excluded from the Fund’s investment universe.
For corporate issuers, the Investment Adviser relies on third party provider(s) who identify an issuer’s participation in or the revenue which they derive from activities that are inconsistent with the values and norms-based screens. In the event that exclusions cannot be verified through the third party provider(s), the Investment Adviser will aim to identify business involvement activities through its own assessment.
The Negative Screening Policy applied by the Investment Adviser can be found on:
https://www.capitalgroup.com/content/dam/cgc/tenants/eacg/negative-screening-policy.pdf
The Fund promotes, among other characteristics, environmental and social characteristics, provided that the companies in which investments are made follow good governance practices. Good governance practices are evaluated as part of the Investment Adviser’s eligibility process. Such practices are assessed through a monitoring process. Where relevant, fundamental analysis of a range of metrics that cover auditing practices, board composition and executive compensation, among others, is also conducted. The Investment Adviser also engages in regular dialogue with companies on corporate governance issues and exercises its proxy voting rights for the entities in which the Fund invests.
Capital Group's ESG Policy Statement provides additional detail on Capital Group’s views on specific ESG issues, including ethical conduct, disclosures and corporate governance. Information on Capital Group’s corporate governance principles can be found in its Proxy Voting Procedures and Principles as well as in the ESG Policy Statement.
Further details can be found in the ESG Policy Statement on:
https://www.capitalgroup.com/content/dam/cgc/tenants/eacg/esg/files/esg-policy-statement(en).pdf
Proportion of investments
The Fund’s carbon constraint does not apply to the entire portfolio, and will only apply to corporate issuers that have carbon emissions data available (reported or estimated). Sovereign, cash holdings and derivatives are also not considered in scope of the carbon constraint.
The Capital Group's ESG Negative Screening Policy will apply to the entire portfolio, with the exception of cash holdings and derivatives.
The planned asset allocation is monitored continuously and evaluated on a yearly basis.
Monitoring of environmental or social characteristics
To measure the attainment of the environmental and/or social characteristics promoted, the Fund considers the following principal adverse impacts (PAIs) on sustainability factors:
- Principal Adverse Impact 1 on greenhouse gas emissions.
- Principal Adverse Impact 4 on exposure to companies active in the fossil fuel sector.
- Principal Adverse Impact 10 on United Nations Global Compact violators.
- Principal Adverse Impact 14 on controversial weapons.
The Fund applies investment restrictions rules on a pre-trade basis in portfolio management systems to prohibit investment in companies or issuers based on the exclusion criteria. The portfolio also undergoes regular/systematic post-trade compliance checks.
To support this screening, for sovereign issuers, the Investment Adviser relies on the use of proprietary research. The Investment Adviser leverages data from third party institutions to calculate ESG scores across the entire sovereign universe. This assessment highlights indicators related to vulnerability to climate change, dimensions of human development, and various measures of governance. Data for each issuer is analysed to compute composite sovereign ESG performance scores. Sovereign issuers that are considered to be poor performing outliers are excluded from the Fund’s investment universe.
For corporate issuers, the Investment Adviser relies on third party provider(s). This allows the Investment Adviser to identify all publicly traded companies globally that are inconsistent with the applicable ESG and norms-based screens. The third party provider(s) supplies a profile of each company’s specific business involvement in, or the revenue which they derive from, activities that are inconsistent with the values and norms-based screens applied to the Fund.
In the event that exclusions cannot be verified through the third party provider(s), the Investment Adviser will aim to identify business involvement activities through its own assessment.
The Investment Adviser can select investments to the extent they do not trigger a breach of the carbon target and are in line with the Negative Screening Policy.
Please refer to Capital Group's ESG Negative Screening Policy for further details.
An additional objective of the Fund is to ensure that the carbon footprint is generally at least 30% lower than the securities included in the respective indices. This will not apply to sovereign issuers. The selected indexes are representative of the investment universe of the Fund. The Investment Adviser uses WACI as a metric to measure the Fund’s carbon footprint. In calculating the Fund’s WACI, the Investment Adviser relies on a third party data provider. In the event that reported carbon emissions data is not available for a particular issuer, the third party provider may provide estimates using their own methodologies. Issuers that do not have any carbon emissions data available (reported or estimated) are excluded from the WACI calculation. The Investment Adviser assesses the portfolio WACI on an ongoing basis to help the Fund remain within the target level. It is not the intention of the Investment Adviser to automatically exclude higher carbon emitters on an individual basis.
If the portfolio was in danger of breaching the target, holdings would be adjusted to increase the margin between the portfolio carbon footprint and target level; exposure to selected higher emitters would be reduced with increased exposure to lower emitters, while ensuring the Fund’s investment objective is maintained. Compliance checks are in place to facilitate this and mitigate the risk of any breach, for example as the result of market movement. Carbon footprint reports use MSCI Carbon Footprint Metrics data.
Methodologies
The Fund implements two binding ESG-related criteria: sector- and norms-based screens in the form of exclusions and a carbon footprint target.
The SFDR classification is related to the European Union’s regulation and is not equivalent to approval or recognition as an ESG Fund by regulators in Asia Pacific.
The exclusionary screens are implemented pre-trade and the carbon target is managed and monitored at the aggregate portfolio level.
The negative screens and carbon target align to the four PAIs listed above.
Data sources and processing
Exclusions are primarily identified through a third-party provider, MSCI ESG Business Involvement Screening Research (“MSCI ESG”). Other data points include the MSCI United Nations Global Compact and MSCI Carbon Footprint Metrics.
Capital Group periodically reviews the quality of our service provider organisations’ performance and conducts ongoing monitoring and due diligence activities commensurate with the significance of the services provided.
The Fund’s Negative Screening Policy applied can be found on:
https://www.capitalgroup.com/content/dam/cgc/tenants/eacg/negative-screening-policy.pdf
Limitations to methodologies and data
The methodology and sources relating to the exclusions and the ESG integration approach as a whole have certain limitations. The Fund applies investment restrictions rules on a pre-trade basis in portfolio management systems to prohibit investment in companies or issuers based on the exclusion criteria. The portfolio also undergoes regular/systematic post-trade compliance checks. In the event that exclusions cannot be verified through the third party provider(s), the Investment Adviser will aim to identify business involvement activities through its own assessment.
When assessing the ESG characteristics of securities and the selection of such securities, subjective judgement within the investment process might be involved.
The carbon footprint is measured by the WACI score relative to the relevant index. The WACI is calculated based on securities for which this can be measured, currently defined as those issued by corporate issuers. Excluded from the WACI determination are cash holdings, derivatives, sovereigns and securitised products.
Due diligence
Members of Capital Group's compliance, risk management and internal audit staff conduct periodic assessments on the design and operating effectiveness of the firm’s ESG activities and key controls. This includes compliance with internal processes and procedures as well as with the regulatory landscape in the jurisdictions in which the company operates. Capital Group meets regularly with the third-party data providers to review the quality of the services provided.
Engagement policies
Establishing dialogue with companies is an integral part of the Investment Adviser’s investment management service to clients. Capital Group’s investment teams meet on a regular basis with company management, including executive and non-executive directors, chairs and finance directors. This enables the company to engage and generate dialogue on any issues that could affect the company’s long-term prospects, including exposures to sustainability issues.
Where Capital Group's investment teams identify an issue material to the long-term value of a company or they are concerned about relative ESG performance, Capital Group's investment professionals and governance teams will engage with management. The understanding of these issues, as well as management’s response and the steps they take to minimise any associated risks, forms an important part of Capital Group's assessment of management quality, which itself is a key factor in the stock selection decisions.
Designated reference benchmark
The Fund has not designated a reference benchmark to meet the environmental and/or social characteristics it promotes.
Disclaimer
This material is issued by Capital International Management Company Sàrl (“CIMC”), 37A avenue J.F. Kennedy, L-1855 Luxembourg, unless otherwise specified, and is distributed for information purposes only. CIMC is regulated by the Commission de Surveillance du Secteur Financier (“CSSF” – Financial Regulator of Luxembourg) and is a subsidiary of the Capital Group Companies, Inc. (Capital Group).
All Capital Group trademarks are owned by The Capital Group Companies, Inc. or an affiliated company in the US, Australia and other countries. All other company and product names mentioned are the trademarks or registered trademarks of their respective companies.
© 2023 Capital Group. All rights reserved.