Sept. 12, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 2
Event: DWS files for 3 new ESG ETFs and operationalizes one.
Briefing Points: i) DWS (formerly Deutsche Asset Management) has launched one of the three ESG international ETFs that it registered with the SEC earlier in the month, ii) The firm’s first sustainable entry in the US, the newly launched Xtrackers MSCI EAFE ESG Leaders Equity ETF invests in mid- and large-cap stocks of developed countries, ex-US and Canada, and iii) The new ETF is designed to provide investors with “efficient access to international markets” and companies with high ESG ratings as measured by MSCI – the ETF indexed against the MSCI EAFE ESG Leaders Index.
Affected Fund(s): Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG)
Asset Classes: Non-US Equities
Management Company: DWS Group (New York, NY)
DD Concerns: Change in product-line or strategy offering
Marketing Considerations: The firm’s new filings and the current launch suggests a commitment to ESG investing, also reinforced by the introduction of the DWS ESG Liquidity Fund (See September 4). The expansion of its product-line to non-US and Canada is targeting a more sophisticated investor base and reps interested in a one-stop ETF allocation platform.
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Sept. 7, 2018
DUE DILIGENCE Alert: LOW
COMPETITIVE Alert: 3
Event: VanEck’s green bond ETF trims its fees.
Briefing Points: i) VanEck has reduced the expense ratio on its $18.1 million Green Bond ETF from 40 bps to 30 bps, ii) The fee cut is in response to heightened competition in the sector, in terms of current and announced green bond offerings, including mutual funds and ETFs, and the firm’s view that lowering fees allow investors to “build sustainable fixed income funds” portfolios without incurring “a significant impact to their risk and return profile,” and iii) The ETF which is the “first and only US-listed” green bond ETF, is pegged to the S&P Green Bond Select Index. That said, Calvert and Mirova offer actively managed green bond mutual funds that have gathered $180.2 million to-date.
Affected Fund(s): VanEck Vectors Green Bond ETF (GRNB)
Asset Classes: US Fixed Income
Management Company: Van Eck Associates Corporation (New York, NY)
DD Concern: Market share or positioning
Marketing Considerations: It is suspected that the fee change may reflect deeper marketing concerns for the firm. The fee change is somewhat surprising in light of industry-wide indications of growing interest in ESG fixed income investing, especially from retirement and asset allocation platforms.
Sept. 7, 2018
DUE DILIGENCE Alert: HIGH
COMPETITIVE Alert: 3
Event: Impact Investments to make sub-advisor change.
Briefing Points: i) State Street Global has been selected as a replacement for Wellington as sub-advisor for the Domini Impact Equity Fund, ii) The sub-advisory change is schedule to take place on December 1, 2018, and iii) Wellington has managed the $812mn account since May 2009.
Affected Fund(s): Domini Impact Equity Fund
Asset Classes: US Equities
Management Company: State Street Global Advisors (Boston, MA)
DD Concern: Portfolio management team change
Marketing Considerations: Thea fund, which has underperformed relative to the S&P 500, is managed using a two-step process that combines social, environmental and governance analysis and Wellington’s active management which will now be assumed by State Street. The fund’s track record illustrates that sustainability strategies generally and ESG integration in particular are not sufficient, on their own, to overcome active management portfolio construction considerations such as sector and stock selection. It remains to be seen how the fund performs over different market cycles under its new management.
Sept. 6, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 4
Event: TD Ameritrade now offers socially aware strategies on robo-advisor platform.
Briefing Points: i) TD Ameritrade is offering five socially aware strategies that reflect varying risk and investment goals, ii) The strategies are comprised of ETFs investing in companies with high ESG scores from MSCI, and iii) TD Ameritrade reviews the ETF selections and their holdings to determine those best suited for robo-client portfolios.
Affected Fund(s): TD Ameritrade Essential Portfolios
Asset Classes: All
Management Company: TD Ameritrade Investment Management, Inc. (Jersey City, NJ)
DD Concern: Consistency of investment analytics and research
Marketing Considerations: The availability of a robo-advisor platform can be considered a plus when approaching selected retail market niches and financial advisers.
Sept. 6, 2018
DUE DILIGENCE Alert: HIGH
COMPETITIVE Alert: 5
Event: First US-based ESG money market fund for institutional investors from DWS.
Briefing Points: i) DWS (formerly Deutsche Asset Management) is offering the first US-registered money market fund with ESG criteria including, “efforts to meet the UN Sustainable Development Goals,” ii) The fund will invest in USD denominated high-quality, short-term money market instruments including, US government obligations, and iii) Based on the managers back-tests, the fund ESG restrictions had a “minimum effect on performance” and lags similar “non-ESG funds by only two to five basis points.”
Affected Fund(s): DWS ESG Liquidity Fund
Asset Classes: US Government and corporate Fixed Income
Management Company: DWS Group (New York, NY)
DD Concerns: New untested mandate and/or management team
Marketing Considerations: While GuideStone Funds has been offering a values-based money market fund in the US for some years, DWS ESG-oriented fund will leverage off and benefit from the firm’s strong institutional liquidity management reputation and expertise. It will also have the advantage of offering the first of its kind ESG fund in the US market to institutional investors.
Sept. 6, 2018
DUE DILIGENCE Alert: HIGH
COMPETITIVE Alert: 3
Event: New China ESG UCITS fund operationalize by East Capital (Sweden).
Briefing Points: i) The new East Capital UCITS fund invests in high-quality companies based in China, that “incorporates” an ESG overlay in its stock selection process, ii) The fund’s Swedish-based manager has a team-presence in Asia, which “focuses on emerging and frontier markets,” and iii) The fund’s benchmark is the MSCI China A Index.
Affected Fund(s): East Capital UCITS China A-Shares fund
Asset Classes: Non-US Equities
Management Company: East Capital International AB (Sweden)
DD Concern: New untested mandate and/or management team
Marketing Considerations: Undoubtedly the fund will garner interest in Europe, where it is one of the first of its kind to be sold. But the validity of its ESG standards deserves careful due diligence at least over the mid-term, if not longer, given it China focus.
Sept. 4, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 2
Event: ESG “filters” to be employed for 2 Northern Trust fund strategies
Briefing Points: i) In a collaboration initiative between Northern Trust and ABN AMRO, two Northern Trust fund strategies will now utilize “ESG filters” in their stock selection processes, ii) The affected UCITS funds, which will undergo name changes, will exclude companies manufacturing tobacco and “controversial weapons”, and be indexed against the MSCI North American Custom ESG Index and the MSCI European Custom ESG Index using Northern’s ESG criteria, iii) ABN AMRO encourages clients to invest in sustainable investment products and services. At the end of 2017, sustainable investments by clients of ABN AMRO totaled € 10.2 billion. ABN AMRO aims to increase this amount to € 16 billion by the year 2020 and launch 22 SRI mandates.
Affected Fund(s): Northern Trust North American Custom ESG Index FGR fund and Northern Trust Europe Custom ESG Index FGR fund
Asset Classes: US and Non-US Equities
Management Company: Northern Trust Asset Management (Chicago, IL)
DD Concern: New untested mandate and/or management team
Marketing Considerations: The funds’ approach offers ABN AMRO’s client-base a more unique passive strategy and improves the firm’s competitive advantage. At the same time, the funds’ lack an established track record in terms of performance and impact.
Sept. 3, 2018
DUE DILIGENCE Alert: LOW
COMPETITIVE Alert: 2
Event: New head of ESG investing hired by Miraband (Paris).
Briefing Points: i) Harrid Amoura has been hired as the head of ESG – a new position – at Mirabaud, a Paris-based institutional asset manager, ii) Mr. Amoura, was previously an equity portfolio manager and coordinator for ESG implementation at BNP Paris Cardif funds, and iii) The establishment of the new position is in response to growing demands from clients, “who increasingly view ESG as an integral part of their investment solutions and the firm’s commitment to integrating ESG principles into its investment process.
Affected Fund(s): All Mirabaud funds and strategies
Asset Classes: All
Management Company: Mirabaud Asset Management (Paris, France)
DD Concern: Portfolio management consistency
Marketing Considerations: Non-US (European) managers repositioning and reinforcing of their sustainable investing capabilities, are not likely to have retail implications for US markets. They do, however, provide an indication of potential future trends that can be expected for US fund managers once sustainable investing matures stateside.
DEFINITION — ALERT RATINGS
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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.
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.
