October 25, 2018
DUE DILIGENCE Alert: LOW
COMPETITIVE Alert: 1
Event: New European ESG fund from Spanish insurer, Mapfre.
Briefing Points: i) The Spanish insurance company, Mapfre, has opened a new ESG-responsible fund with an emphasis on capital preservation, ii) The new Luxembourg domiciled fund, which is part of a new line of Mapfre ESG investment products, will invest in stocks and bonds of European companies with strong ESG records, and iii) The fund will mainly be sold to retail investors in Spain and France as well as, international investors.
Affected Fund(s): Mapfre Capital Responsibility Fund
Asset Classes: Non-US Equities and Fixed Income
Management Company: Mapre Asset Management (Spain)
DD Concern: New untested mandate
Marketing Considerations: There is little near- or mid-term concern for the domestic market. The interesting aspect is that the new fund reflects yet another entrant into the ESG fund space even as its offering is fairly localized in its targeted market.
October 23, 2018
DUE DILIGENCE Alert: LOW
COMPETITIVE Alert: 4
Event: BlackRock expands its UCITS ESG ETF choices.
Briefing Points: i) BlackRock has added six new UCITS ESG ETFs, part of the iShares series, that are indexed to the newly introduced MSCI ESG Screened Indexes, ii) The new ESG ETFs, including iShares MSCI World ESG Screened UCITS ETF, iShares MSCI Japan ESG Screened UCITS ETF, iShares MSCI Emerging Markets IMI ESG Screened UCITS ETF, iShares MSCI Europe ESG Screened UCITS ETF, iShares MSCI EMU ESG Screened UCITS ETF and iShares MSCI USA ESG Screened UCITS ETF, will track MSCI indices that screen out controversial weapons, nuclear weapons, civilian firearms, and tobacco companies implicated in the violation of the United Nations Global Compact principles, thermal coal and oil sands. The funds will charge between 0.07% and 0.2% in total expenses and will complement iShares’ existing 15 ESG UCITS ETFs, and iii) at the same time, BlackRock introduced 5 ESG model portfolios utilizing the new ESG ETFs that are available to advisors and independents.
Affected Fund(s): iShares Sustainable UCIYS Core ETFs
Asset Classes: US and non-US Equities
Management Company: BlackRock, Inc. (New York, NY)
DD Concern: New untested mandate
Marketing Considerations: The addition of model portfolios along with new portfolio construction and risk evaluation tools (see October 22) will expand access to ESG products, data and sustainability-related insights for do it yourself investors as well as financial intermediaries. This is part of strategic push for BlackRock and reflects the importance the firm assigns to ESG that it is forecasting will rise to $400 billion in assets by 2028.
October 23, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 4
Event: State Street offers a “clean power” ETF.
Briefing Points: i) The new thematic ETFs invest in “clean power” i.e., renewable energy providers and their technology suppliers, ii) State Street collaborated with Kensho Technologies, a data analytics and “machine intelligence” company, to develop their proprietary “Kensho Clean Power Index, and iii) The Clean Power ETF is one of 40 industry sector ETFs offered by State Street.
Affected Fund(s): SPDR Kensho Clean Power ETF (XKCP)
Asset Classes: US Equities
Management Company: State Street Global Advisors (Boston, MA
DD Concern: New untested mandate
Marketing Considerations: The sustainable ETF race invites new more discretely and specialized sector mandates in light of interests from allocators. The downside is sector concentration risk and exposure to potential performance variability as investor sentiments shift while at the same time offering some diversification from idiosyncratic or company specific risks.
October 22, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 4
Event: BlackRock adds iShares ESG U.S. Aggregate Bond ETF and expects to make ESG data available for all ETFs next year
Briefing Points: i) BlackRock, which already offers the $41.6 million iShares ESG 1-5 year USD Corporate Bond ETF and the $18.1 million iShares ESG USD Corporate Bond ETF is expanding its lineup of fixed income ETFs by launching the iShares U.S. Aggregate Bond ETF at a 10 basis point expense ratio, ii) the fund covers the investment-grade bond universe consisting of U.S. Treasury bonds, non-securitized government-related bonds, corporate bonds, mortgage-backed pass-through securities, commercial mortgage-backed securities and asset-backed securities that are publicly offered for sale in the U.S. Like the other two bond indexes, the securities are optimized to maximize exposure to securities of entities with higher MSCI ESG Research ratings while also excluding securities of entities involved in the business of tobacco, entities involved with controversial weapons, producers and retailers of civilian firearms, as well as entities involved in very severe business controversies (in each case as determined by MSCI ESG Research), and iii) BlackRock also announced that it plans to make ESG and carbon intensity metrics available for all its exchange traded funds by early next year, including MSCI ESG Quality Scores, MSCI ESG Percentage of coverage, MSCI Lipper Peer Group percentile ranking and MSCI Weighted Average Carbon Intensity.
Affected Fund(s): iShares ESG U.S. Aggregate Bond ETF; All iShares ETFs
Asset Classes: US fixed income and all iShares ETFs
Management Company: BlackRock, Inc. (New York, NY)
DD Concern: New untested mandate
Marketing Considerations: The addition the ESG-focused U.S. Aggregate Bond ETF now offers an important domestic investment-grade fixed income building block for the purpose of constructing an asset allocation mapping for diversified ESG portfolios. The availability of ESG and carbon intensity metrics for all iShares ETFs is a good start to expanding access to products for customers who may wish to qualify funds on the basis of ESG suitability metrics, but relying on their own thresholds rather than the standards superimposed by other ESG data providers.
October 22, 2018
DUE DILIGENCE Alert: LOW
COMPETITIVE Alert:
Event: Touchstone renames its Total Return Bond Fund.
Briefing Points: i) Touchstone has renamed its Total Return Bond Fund to the Impact Bond Fund, to better reflect its subadvisor’s emphasis on issuers with strong ESG records, ii) The fund’s investment process and subadvisor, EARNEST Partners and their team will be unchanged, and iii) EARNEST, who has sub-advised the fund since 2011, employs a bottom-up value-driven credit selection approach emphasizing high risk adjusted performance and positive ESG standings.
Affected Fund(s): Touchstone Impact Bond Fund
Asset Classes: US Fixed-Income
Management Company: Touchstone Advisors, Inc. (Cincinnati, OH)
DD Concern: Competitive strategy move/repositioning
Marketing Considerations: The fund expands upon Touchstone’s current offerings of two equity funds that are managed to ESG and SRI screening mandates. That said, the fund’s Principal Investment Strategies section in the Summary Prospectus as of August 31, 2018 (latest filing) does not reflect this formal shift in strategy.
October 22, 2018
DUE DILIGENCE Alert: LOW
COMPETITIVE Alert: 3
Event: BNP Paribas hires Head of Stewardship.
Briefing Points:i) Adam Kanzer has been hired by BNP Paribus to the newly created position of Head of Stewardship (North America), ii) Mr. Kanzer was previously with Domini Impact Investments where he led corporate engagement activities and also focused on “public policy advocacy and proxy voting” issues, iii) In his new position he will be involved in researching corporate governance, “working with policymakers” on ESG issues, and also heading up investor relations.
Affected Fund(s): All Paribas Funds
Asset Classes: All
Management Company: BNP Paribas Asset Management (New York, NY)
DD Concern: Competitive strategy move/repositioning
Marketing Considerations: The senior level hiring, coming just some three months after hiring Jane Ambachtsheer frm Mercer to head up BNP’s global sustainability effort, reflects BNP Paribas’ continued strong commitment to its global sustainability initiative.
October 19, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 2
Event: Nordea plans to internalize management of fund and rework it as an ESG-focused strategy.
Briefing Points: i) Management of the Nordea North American All Cap Fund, which had been sub-advised by Eagle Asset Management’s Ed Cowart, will be taken in-house by Nordea, ii) In the process, the fund will adopt an ESG –focused strategy that will invest in companies meeting “international standards surrounding ESG ” considerations, and iii) The fund currently has about $89 million in AUM and maintains a value-driven investment style.
Affected Fund(s): Nordea North American All Cap Fund
Asset Classes: US Equities
Management Company: Nordea Asset Management North America, Inc. (New York, NY)
DD Concern: Company or fund product governance/cultu
Marketing Considerations: Nordea, which is the largest financial services group in the Nordics, has been integrating sustainability into its business activities for some years. This development may signal the intention on the part of the US-based asset management arm to introduce additional ESG fund products in the US.
October 18, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 4
Event: Invesco buys OppenheimerFunds – both firms currently have ESG funds.
Briefing Points: i) Invesco Ltd. Acquires OppenheimerFunds for $5.7 billion and an approximate 15.5% stake in the US firm, ii) Oppenheimer, with about $246 billion in AUM, is known as a stock-picker with a focus on global, international and emerging equities, iii) Both firms have sustainable funds, although the three Oppenheimer funds with $78.5 million in assets will not move the needle relative to Invesco’s $4.8 billion in mutual fund and ETF assets that ranks Invesco in 16th place among sustainable investing firms as of September 30, 2018.
Affected Fund(s): Oppenheimer ESG Revenue ETF, Oppenheimer Global ESG Revenue ETF
Asset Classes: US and Non-US Equities
Management Company: OppenheimerFunds, Inc. (New York, NY)
DD Concern: Merger/acquisition/divestiture
Marketing Considerations: As with any large acquisition, there is uncertainty as to the stability of the corporate and investment management teams, and by extension, possible changes to the acquired firm’s overall corporate culture. That said, the union of the two firms helps to move the combined firm closer to “securing” its position in the marketplace, and offers the potential for broadening product offerings and services.
October 17, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 2
Event: Barings opens its first retail fund in the US, with an ESG-tilt
Briefing Points: i) Barings Asset Management, a subsidiary of MassMutual, has opened a global emerging market equity fund, which is its first US retail investor offering, ii) The new fund will employ a bottom-up approach that principally screens on company fundamentals with a secondary ESG overlay, and iii) The new fund’s strategy has been used by Barings in institutional and off-shore (Dublin-based) funds since 1992, which currently have about $669 million in AUM.
Affected Fund(s): Barings Global Emerging Market Equity Strategy
Asset Classes: Non-US Equities
Management Company: Barings LLC (Charlotte, NC)
DD Concern: Cash flow/liquidity management
Marketing Considerations: The firm is not a newcomer to ESG mandates, although it hasn’t been a player in the US retail market – cash flow management becomes a concern, especially during market contractions.
October 15, 2018
DUE DILIGENCE Alert: LOW
COMPETITIVE Alert: 4
Event: Northern Trust tops list with highest concentration of passive ESG assets.
Briefing Points: i) Northern Trust has the highest concentration of internally managed ESG index fund assets (followed by BNY Mellon and State Street Global Advisors), ii) NT has approximately $78 billion or 13.7% of its total of $572.5 billion in internally managed sustainable investment funds that are passively managed, iii) Although NT’s first sustainable investment fund, the Northern Global Sustainable Index Fund, was opened in 2008, the firm has managed such accounts for 30+ years.
Affected Fund(s): All Northern Trust sustainable index funds and SMAs
Asset Classes: US and Non-US Equities
Management Company: Northern Trust Asset Management (Chicago, IL)
DD Concern: Cash flow/liquidity management
Marketing Considerations: The firm’s largely institutional and HNW client base is well established. Their sustainable investing status, particularly among passively-managed products, is also well-established. This reputation is considered a positive factor especially in the DC market.
October 15, 2018
DUE DILIGENCE Alert: LOW
COMPETITIVE Alert: 1
Event: New ESG oversight service from INDOS Financial.
Briefing Points: i) Hedge fund depository INDOS Financial plans to offer a new ESG oversight service in 1Q18, ii) The new service which will be supported by Prime Advocates, will be designed to provide investors with “confidence that managers are complying with their ESG policies,” and iii) The oversight service will not assess individual company’s ESG rankings, but will evaluate portfolios against their stated ESG guidelines.
Affected Fund(s): Alternative Funds
Asset Classes: All
Management Company: INDOS Financial Ltd. (London, UK)
DD Concern: Company or fund product governance/culture
Marketing Considerations: Outsourcing management oversight expertise, should always consider the servicer’s background in a specific product type. For this reason, transferring this service to the mutual fund/ETF arena is a longer-term initiative, if at all. Whether ESG oversight of this sort is currently of importance in the alternative fund world is another question.
October 9, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 2
Event: UBS’s new head of Fund Investment Solutions.
Briefing Points: i) UBS has assigned Michael Kehl the post of Head of Fund Investment Solutions for the firm’s Global Wealth Management group: ii) Kehl plans to establish a more forward-looking assessment with respect to evaluating company’s ESG commitments, while avoiding potential biases from relying too much on backward or retrospective views: iii) Additionally, Kehl plans to lessen emphasis on “quantitative only approach” which often are limited to a “single point in time” and may not fully “reflect fund manager’s ESG viewpoints.”
Affected Fund(s): All UBS Funds and SMAs
Asset Classes: US and Non-US Equities
Management Company: UBS Global Wealth Management (New York, NY)
DD Concern: Portfolio management consistency
Marketing Considerations: The potential for new selection process is a clear uncertainty for investors. The changes as described do exhibit added sophistication of process, but brings with it transparency and disclosure issues.
DEFINITION — ALERT RATINGS
________________________________________________________________________
Due Diligence (“DD”) Alert: Ranks each identified sustainable fund event or development according to a three-point “call to action” scale that ranges from Low to High, defined as follows:
LOW: A preliminary review and evaluation is recommended, but no on-going monitoring or manager meeting is needed. Non-US fund offerings will typically be assigned Low Due Diligence Alert levels as these are largely intended for informational purposes and potentially these may have marketing considerations locally.
MODERATE: Near-to-mid-term review and evaluation is recommended along with a manager meeting.
HIGH: Immediate manager contact and meeting are recommended, plus detailed review and evaluation – scheduled on-going more detailed monitoring and follow-up manager meeting(s) are advised.
Marketing Considerations: Ranks the level of required response/urgency for each identified sustainable fund’s product development, sales, promotional or other strategic marketing event or development. The ranking scale is 1 to 5, where a rank of 1 indicates the lowest level of urgency, requiring little or no competitive response, to a rank of 5 that indicates the highest level of urgency, requiring immediate competitive and/or marketing and sales force response.
