Sept. 27, 2018
DUE DILIGENCE Alert : HIGH
COMPETITIVE Alert : 3
Event: Vanguard Charitable to add new ETF-based ESG strategies.
Briefing Points: i) The new strategies or “goals,” scheduled to become effective on October 1, allow charitable assets of investors to be directed into 3 ETF-based ESFG options, ii) Two of the new options correspond to Vanguard’s recently introduced ESG US Stock ETF and its ESG International ETF (see September 20), iii) The third offering, to be named the Vanguard ESG Global Stock ETF, is a blended portfolio with 70% in the Vanguard ESG US Stock ETF and 30% in its ESG International Stock ETF.
Affected Fund(s): Vanguard Charitable ESG US Stock Option, Vanguard Charitable ESG International Stock Option, and Vanguard Charitable ESG Global Stock Option
Asset Classes: US and Non-US Equities
Management Company: The Vanguard Group (Valley Forge, PA)
DD Concern: Investor Outreach/Educational
Marketing Considerations: Vanguard has been offering its successful $5.2 billion FTSE Social Index Fund since May 2000 which tracks the FTSE 4Good US Select Index. The addition of the ESG options to the charitable platform suggests more to come from the firm for Vanguard’s other institutional platforms, most notably its DC and 401k) businesses.
Sept. 25, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 3
Event: TruValue offers platform enhancements for identifying ESG issues in portfolios and investments.
Briefing Points: i) TruValue Lab, a fintech provider to investors and asset managers, has upgraded its research scanning platform for identifying ESG themes and trends within individual securities and funds, ii) The enhancements include expanding its “Thematic search” capabilities and data base for allowing users to pinpoint ESG considerations “by benchmarks, specific portfolios, sectors, industries and material categories,” and iii) TruValue is a provider of analytics for investment managers using artificial intelligence in assessing “real ESG behavior” and its impacts on company value.
Affected Fund(s): TruValue Insight360 platform
Asset Classes: All
Management Company: TruValue Labs (San Francisco, CA)
DD Concern: Portfolio management consistency
Marketing Considerations: The approach offers investors and investment managers additional capabilities and inputs, although a “big data” approach to gathering and organizing ESG data ignores important qualitative considerations with respect to ESG factors. TrueValue’s approach is intended to address some of the often cited issues with ESG ratings, such as lack of standardization, lack of transparency, scoring trade-offs, quality of information inputs, delayed reporting and updating, and internal compliance practices. That said, there are also concerns about how users will interpret the platform’s output, especially given potentially wide variations in user skill sets and their investment objective and ESG values and “sentiments.”
Sept. 20, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 5
Event: Vanguard launches two ESG ETFs.
Briefing Points: i) Vanguard Group has launched its first US-based ESG ETFs – one is an international equity portfolio and the second is a US equity portfolio, ii) The new ETFs have an emphasis on limiting exposure to fossil fuels and other exclusionary screens complying with the UN standards, and iii) The international equity ETF which has an expense ratio of 15 bps is indexed to the FTSE Global All Cap ex-US Choice Index, and the US equity ETF is pegged to the FTSE US All Cap Choice Index with a fee of 12 bps.
Affected Fund(s): Vanguard ESG US Stock ETF (ESGV), Vanguard ESG International Stock ETF (VSGX)
Asset Classes: US and Non-US Equities
Management Company: The Vanguard Group (Valley Forge, PA)
DD Concern: Investor outreach/Educational considerations
Marketing Considerations: Since May 2000, Vanguard has been offering its successful $5.2 billion FTSE Social Index Fund that tracks the FTSE 4Good US Select Index and is subject to 12 bps and 20 bps expense ratios applicable to institutional and retail shares. The new offerings reflect an increased commitment on the part of Vanguard to the sustainable investing sphere. The new offerings may introduce some confusion because the new offerings are cheaper for retail investors, they seek to replicate a different index construct and are broader-based in terms of the range of market caps captured.
Sept. 19, 2018
DUE DILIGENCE Alert: HIGH
COMPETITIVE Alert: 4
Event: First retail sukuk fund outside the US is opened.
Briefing Points: i) The new fund has a lower initial investment to accommodate a broader “retail” market, specifically in Malaysia, Indonesia, Bahrain, Kuwait and the UAE, ii) The fund which will invest in sukuks, “Sharia compliant” bonds, plans to generate a 5% annual income distribution, a rate that exceeds the “typical fixed deposit rate” for its market, and iii) Its ESG focus will not be based on exclusions, but on a screen measuring how companies are managed financially and from a sustainability standpoint, using analytics and data provided by Arabesque.
Affected Fund(s): BIMB ESG Sukuk Fund
Asset Classes: Non-US Fixed Income
Management Company: BIMB Investment Management Bhd (Malaysia)
DD Concern: New untested mandate and/or management team
Marketing Considerations: No doubt about it, the fund has a unique market position, however, it remains to be seen how the management firm and the fund deliver on the sustainability profile envisioned by the BIMB ESG Sukuk Fund. There is clearly a tilt to the offering that opens a significant client-base.
Sept. 19, 2018
DUE DILIGENCE Alert: HIGH
COMPETITIVE Alert: 2
Event: Russell to change mutual fund mandate and name to sustainable brand.
Briefing Points: i) On January 1, 2019, the mandate for the $533.5 million Russell US Defensive Equity Fund will be changed to a “sustainable investment strategy,” ii) The fund’s name will be changed at the same time to Russell Sustainable Equity Fund, and iii) The fund’s changes come in light of significant asset outflows since its inception in 2009.
Affected Fund(s): Russell Sustainable Equity Fund
Asset Classes: US Equities
Management Company: Russell Investments (Seattle, WA)
DD Concern: New untested mandate and/or management team
Marketing Considerations: The fund’s “restructuring” is seen as overdue. Whether it makes a difference in terms of performance is questionable. The fund has lagged the S&P 500 over the previous 3, 5 and 10-year intervals. Something beyond adding a sustainable overlay may be needed.
Sept. 18, 2018
DUE DILIGENCE Alert: HIGH
COMPETITIVE Alert: 2
Event: New ESG index strategy from WTW.
Briefing Points: i) Willis Towers Watson (“WTW”) has opened a new ESG integration index strategy, ii) WTW, a London-based advisor and insurance broker, is teaming with MSCI who will provide ESG selection factors for companies included in the index, and iii) The strategy will include both developed and emerging equities, and is designed to distribute risk and capitalization levels across a broader range than “traditional indexes.”
Affected Fund(s): Adaptive Capped ESG Universal Index
Asset Classes: US and Non-US Equities
Management Company: Willis Towers Watson (London, UK and New York, NY)
DD Concern: Consistency of investment analytics and research
Marketing Considerations: The new and unique nature of the index is a natural stepping-off point for new product offerings. Domestically the manager is expected to be mainly an institutional competitor.
Sept. 17, 2018
DUE DILIGENCE Alert: MODERATE
COMPETITIVE Alert: 3
Event: Axa moves to build further firm-wide ESG integration.
Briefing Points: i) Axa Investment Management has moved to further build-out its ESG integration efforts by “embedding specialists into all investment teams” and creating a “central investment team,” ii) Axa hired Yo Takatsuki, a seasoned ESG veteran, from BMO Global as head of ESG research and engagement, to facilitate transparency and clarity for its clients, and iii) Currently about 60% of the firm’s AUM are in ESG-integrated strategies.
Affected Fund(s): All Axa funds and strategies
Asset Classes: All
Management Company: Axa Investment Management Greenwich, CT)
DD Concern: Portfolio management consistency
Marketing Considerations: The firm’s cultural commitment and broad-based integration of ESG continue to expand and these are selling points. It can be expected to reinforce Axa’s overseas and domestic positions.
Sept. 12, 2018
DUE DILIGENCE Alert: HIGH
COMPETITIVE Alert: 2
Event: Multi-Asset ESG fund from Richmond Global.
Briefing Points: i) The fund uses artificial intelligence to identify “ESG datasets” as the basis for its fundamental analysis process, ii) The fund’s management process evaluates and allocates “investment and trading opportunities across global asset classes” and draws upon a “team of experts in sustainability, global macro investing, data science” as input to its decisions, and iii) The new fund, in operations since its inception in May 2017, has only been available to the firm’s partners.
Affected Fund(s): Compass Fund Founders’ Shares
Asset Classes: All
Management Company: Richmond Global Compass Capital, LP (New York, NY)
DD Concern: New untested mandate and/or management team
Marketing Considerations: The fund has a unique tilt in its application of artificial intelligence, but it lacks a historical record, particularly with more volatile and unpredictable cash flows. This is even more important given the firm’s idiosyncratic management approach.
Sept. 12, 2018
DUE DILIGENCE Alert: HIGH
COMPETITIVE Alert: 3
Event: ESG-related portfolio risk ratings from Sustainalytics.
Briefing Points: i) Sustainalytics has released its revamped ESG ratings in the form of risk ratings that are designed to measure “financially material ESG-related risks” in investor’s portfolios, ii) The quantitative ratings provide a “measure of unmanaged ESG risks” for comparing among portfolios and individual securities, and iii) The ratings offer managers a means to further integrate ESG factors into their investment decisions and presumably these risk ratings will also now be integrated into Morningstar’s mutual fund Sustainability Ratings.
Affected Fund(s): Sustainalytics ESG Risk Ratings
Asset Classes: All, but largely equity-oriented funds
Management Company: Sustainalytics (Amsterdam)
DD Concern: Change in fund’s sustainability rating/ESG rating
Marketing Considerations: Morningstar assigns mutual fund Sustainability Ratings by applying the ratings produced by Sustainalytics to mutual fund holdings. Not only can aggregate ratings change with some frequency, but the new risk ratings offered by Sustainalytics, when applied to funds by Morningstar, may now experience shifts which, in some cases, could be material even as a fund’s strategy remains unchanged.
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.
