Environmental, social, and governance (ESG) investing continues to gain momentum among U.S. pension investors and public defined benefit (DB) plans with the largest public DB plans moving quickly to build ESG considerations into investment processes, Cerulli Associates highlights in a recent analysis.
“Some of the largest public plans in the U.S. have blazed a trail toward full incorporation of ESG themes in their portfolios, especially those related to climate change“, reveals the latest “Cerulli Edge—U.S. Institutional Edition“. In this sense, it shows that approximately 20 U.S. DB plans, including the top-five public pension plans in the U.S., are now listed as members of Climate Action 100+, an initiative to fight climate change through engagement with corporate greenhouse gas emitters. “These plans, while only a small portion of the group, represent a significant portion of assets given their collective asset base”, it adds.
The report points out that many defined benefit plans (especially smaller ones) are reluctant to purse ESG considerations due to the murky regulatory environment, especially for ERISA-regulated corporate pensions. In late 2020, the Trump administration placed a ban on ESG investing for corporate DB plans that was quickly overturned by the Biden administration, moving regulation back in line with investor consensus on ESG and giving these institutional investors the freedom to pursue better performing portfolios by taking ESG risks into consideration along with traditional financial considerations.
Despite mixed signals from the Department of Labor, Cerulli believes that demand will remain high for ESG strategies. According to the research, over 90% of respondents feel that public pensions will have moderate to high demand for ESG strategies in the near future. The firm thinks that managers that can demonstrate capabilities in this area and offer competitively priced products with strong net-of-fees performance will thrive as ESG continues to move into the investment mainstream.
“Those who can communicate their genuine beliefs about ESG investing to pensioners, board members, and other stakeholders, sharing insights grounded in facts and empirical proof of ESG’s efficacy, will build lasting relationships based on a relatively new and deeply meaningful set of investment management criteria,” says Robert Nelson, director.
Allianz Global Investors has appointed this week Carlos Carranza as Director and Senior Investment Strategist of its Emerging Markets Debt team.
Carranza will be based in the New York office and report to Richard House, Chief Investment Officer for Emerging Markets Debt. He joins from JP Morgan where he worked for thirteen years, leading the Latin America FX and Local Rates Strategy team as part of the Emerging Markets Research Group.
In his new role at Allianz GI, Carranza will provide macroeconomic, political, and ESG analysis of Latin American countries to develop and maintain country-specific macroeconomic and ESG models for investment trade ideas, portfolio monitoring, and positioning.
Carranza is bilingual in English and Spanish and received his Bachelor’s Degree in Actuarial Science from the University of Buenos Aires and Master’s in Finance from the University of Macroeconomic Studies, both in Argentina.
Banco Santander has announced that its U.S. holding company, Santander Holdings USA, has reached an agreement to acquire Amherst Pierpont Securities, a market-leading fixed-income broker dealer. The operation will take place through the purchase of its parent holding company, Pierpont Capital Holdings LLC, for approximately 600 million dollars.
In a press release, the bank has revealed that, with this transaction, Amherst Pierpont will become part of Santander Corporate & Investment Banking (Santander CIB) global business line. It is expected to close by the end of the first quarter of 2022, subject to regulatory approvals and customary closing conditions.
“This acquisition is consistent with our customer focused strategy and our commitment to profitable growth in the USA. It complements our product offerings and capabilities, allowing us to strengthen our relationships with our corporate and institutional clients”, Ana Botín, Santander Group executive chairman, said.
In her view, the new team brings a successful track record and experience in delivering value for their clients. “We look forward to incorporating their many strengths into our very successful and growing CIB organization”, she concluded.
Amherst Pierpont is an independent broker-dealer based in the U.S., with a premier fixed-income and structured product franchise. It was designated a primary dealer of U.S. Treasuries by the Federal Reserve Bank of New York in 2019 and is currently one of only three non-banks to hold that designation. It has approximately 230 employees serving more than 1,300 active institutional clients from its headquarters in New York and offices in Chicago, San Francisco, Austin, other US locations and Hong Kong.
The bank believes that the operation enhances Santander CIB’s infrastructure and capabilities in market making of US fixed income capital markets, provides a platform for self-clearing of fixed income securities for the group globally, grows its institutional client footprint, and expands its structuring and advisory capabilities for asset originators in the real estate and specialty finance markets.
The combined platform will also have strong capabilities in corporate debt and securities finance across the US and emerging markets. The acquisition creates a comprehensive suite of fixed income and debt products and services that will drive deeper and more valuable relationships across its respective client bases.
Joe Walsh, Amherst Pierpont’s CEO, pointed out that Santander Group is one of the world’s “most respected” financial institutions and “an ideal partner” for their growing franchise. “With Santander’s global reach we will be able to significantly expandour product offering, grow our client base and increase the level of service we can provide to our clients”, he added.
The broker dealer has generated attractive returns, with an average return on equity (RoE) of approximately 15% since 2016. In 2020 it generated a RoE of 28% and an estimated return on risk weighted assets of 3%. Its acquisition is expected to be almost 1% accretive to group earnings per share and generate a return on invested capital of 11% by year 3 (post-synergies), with a -9 basis point impact on group capital at closing.
The press release has revealed that Wachtell, Lipton, Rosen & Katz and WilmerHale served as legal advisors to Santander in connection with the transaction. Meanwhile, Barclays served as financial advisor to Amherst Pierpont, and Shearman&Sterling as legal advisor.
BlackRock and SpiderRock Advisors have entered into a strategic venture to expand access for wealth firms and financial advisors to professionally managed, options-based separately managed account (SMA) strategies. As part of the agreement, BlackRock will make a minority investment in SpiderRock Advisors.
This new venture builds on BlackRock’s position as a market leader in personalized SMAs, with its franchise managing over 190 billion dollars in SMAs as of March 31. This includes the acquisition of Aperio, a provider of personalized index solutions, which took place at the end of 2020.
SpiderRock Advisors will offer wealth management firms and financial advisors more tools to deliver tax-efficient, personalized portfolios and risk management solutions. This leading provider of customized options strategies in the U.S. wealth market manages approximately 2.5 billion dollars in client assets as of March 31, 2021.
The firm’s strategies are available through all of the major RIA custodians and are focused on risk management and yield enhancement for diversified portfolios as well as concentrated stock positions. BlackRock’s market leaders and consultants in U.S. Wealth Advisory will serve as the primary distribution and marketing team in introducing SpiderRock Advisors’ advisory services and strategies to wealth firms and financial advisors.
BlackRock is already an industry leader in SMAs for U.S. wealth management-focused intermediaries. The firm’s SMA franchise specializes in providing customized actively managed fixed income, equity, and multi-asset strategies. In its view, the venture with SpiderRock Advisors will expand the breadth of personalization capabilities available to wealth managers through this firm.
!We are excited to partner with BlackRock to introduce SpiderRock Advisors and our options management capabilities to a wider audience of firms and their clients,” said Eric Metz, President and Chief Investment Officer of SpiderRock Advisors. He believes that innovative advisors understand the value of managing risk “as we navigate a challenging capital markets landscape”.
“Between potential tax reform, historically low interest rates, and volatile equity markets, options-based strategies and solutions can often solve client objectives more efficiently than conventional allocations and techniques. With BlackRock’s breadth of industry relationships, SpiderRock Advisors will be able to partner with more advisors to deliver tailored portfolios and help investors achieve their investment goals“, he concluded.
The independent investment advisory firm Insigneo has announced the incorporation of a new team of four financial advisors who formed Green Grove Wealth Management. This group of women is comprised of Isadora “Sisi” Del Llano, Yzana Oestreicher, Maria Elena Garcia, and Nilia Gasson, who represent for the company “decades of dynamic international financial experience serving high net worth clients”.
They all serve as Managing Director at Green Grove WM and together they manage over 800 million dollars in assets catering to clients in the United States, the Caribbean, South America, Central America, and Europe.
“We are thrilled that Sisi, Yzana, Maria Elena and Nilia have joined our family of independent international financial advisors in Miami. They each come to us with decades of experience, and we look forward to supporting them and helping them grow their business,” said Javier Rivero, President and COO of Insigneo.
Del Llano studied at the University of Puerto Rico and joins Insigneo after 21 years at Wells Fargo Advisors and its predecessor firms, Wachovia Securities and First Union Brokerage Services. Before Wells Fargo, she worked at Paine Webber and Dean Witter. Her clientele is high net worth professionals and business owners throughout the U.S., Latin America, the Caribbean, and Europe.
Oestreicher is joining the firm with 26 years of experience in the financial services industry, 24 of them in Wells Fargo Advisors and its predecessor firms. Prior to that she worked at the Prudential Securities & Dean Witter. She services high net worth clients from Latin America and the Caribbean such as Suriname, Venezuela, Trinidad, Aruba, and several others from the Caribbean. She received her bachelor’s degree in International Finance and Marketing from the University of Miami and her master’s degree in International Business from NOVA University.
García is a 45-year veteran in the financial industry. She started her career at Chase Banking International, and then spent the remaining 30 years at Wells Fargo Advisors and its predecessor firms. Maria Elena focuses on servicing high net worth clients from US, Caribbean, Central America, and Europe.
Gasson has been living in Miami since 1965 and has served 40 years in the industry as a Financial Advisor, 30 of them at Wells Fargo Advisors and its predecessor firms. Previously, she worked at Southeast Bank Brokerage Services. She services clients across three different continents including the United States, Central and South America, the Caribbean, and Europe.
The Green Grove WM team claimed to be “honored” to be partnering with an “exceptional” firm like Insigneo. “This partnership allows for mutual growth and independence that will benefit all of us, but most importantly our clients. Miami is a premier location for the work we do as it grants us strategic access not only to domestic clients, but also markets in Latin America, the Caribbean and Europe. We look forward to a long and fruitful relationship”, they said.
At Insigneo they will leverage the firm’s technology platform, multi-custodian capabilities, robust product offering and open architecture to serve their global client base. The firm has joined the battle to recruit advisors from Wells Fargo’s US Offshore business after the wirehouse announced in January that it was exiting its international segment.
Foto cedidaLaura González, Global Head de Wealth Management en Allfunds.. Allfunds: “Desembarcamos en Miami con negocio y relaciones de largo plazo ya muy consolidadas”
Allfunds, the world’s largest fund distribution network, debuted its first office in North America in October 2020. We spoke with Laura González, Global Head of Wealth Management at Allfunds and responsible for leading this new expansion from Miami, that will serve as the distributor’s wealtech hub for US Offshore activity.
Allfunds debuted its first office in North America in October 2020. How’s been reaching such a milestone amidst the coronavirus pandemic?
Reaching a new market at the start of an exceptional situation like the one we have experienced and with limited face-to-face meetings is not an ideal situation. It probably didn’t help that our core customer base in the US is made up of private banks either, a market segment that remains highly relational. However, we were lucky enough to land in Miami with well-established business and long-term relationships already in place. We like to arrive at a new location with a strong portfolio and the confidence that we’re there to stay.
If US offshore had been a blank page, the interpretation of the pandemic would have been different.
Joining Allfunds in 2011, you hold a wealth of knowledge on US offshore after working several years with the Latam market. What excites you most about the challenge of leading the Miami office?
Nothing compares to the excitement of opening in a new market. And the more barriers there are to enter the said market, the more exciting it is.
When we decided to launch in Brazil, a lot of people told us that we weren’t going to make it. At the time, we were trying to enter the market with a history of double-digit interest rates, very little permeability to international investment, a high number of talented local managers and many stories of failure in terms of foreign firms entering the market. But the unexpected happened and we had the market before we had the office.
Sometimes being contrarian pays off and I’m sure that we’re going to repeat this same success story in the US. The difference is that this market presents another scale, where there’s a very strong offshore private banking network, which is accompanied by flows, legal certainty, business freedom and many other factors that differ from other places.
The Miami office will serve as Allfunds wealthtech entry point for US offshore activity. In your commitment to the North American market, what can regional clients expect from Allfunds?
I’m certain that our digital value proposal can fit in here. We tend to think of the US as a hotspot for WealthTechs, but when you start thinking about these types of firms that specialize in international funds, the list of candidates starts to narrow down to almost nothing. Having the latest technology is not enough. It must be adapted to all the trends and best practices affecting our industry and it’s no secret that regulations have turned international fund distribution into a multi-jurisdictional challenge.It’s no use having a state-of-the-art digital front-end or robo-advisor if you’re unable to help your clients select the optimal product or share class for their end client, identify fiduciary or liquidity risks, and a host of other factors that have placed an unprecedented workload on our industry professionals.The US already has the Best Interest regulation, which is remarkably similar to the European spirit of MiFID, whereby everything must be in the best interest of the client.
As the world’s largest fund distribution network, what are for Allfunds the core priorities to look out for in the US offshore sphere?
We believe that there are still inefficiencies in the US offshore market. Perhaps because the domestic volume is such that many players consider offshore to be a residual activity, although the numbers are by no means negligible. It’s understandable because, like almost everything in life, this is a game of scale. But our arrival has a lot to do with this scenario. Even in the most efficient markets there are inefficiencies and we think that there’s still work to be done in the US in this sense. There’s room for a global and digital value proposal, which comes hand-in-hand with a multi-currency platform and dedicated monitoring from the investment and product department.
Recently, Allfunds advanced the launch of new blockchain-related solutions, and also enhanced its digital ecosystem Connect with an unprecedent ESG offer. Any new US-tailored product or services that you can briefly disclose to us?
The new launches you mention have their place here because we try to keep our solutions in line with the trends in all the markets in which we operate. That’s one of the reasons why we have local offices in 16 countries and tailor-made solutions for the Mexican, Brazilian, Asian market, etc. Having a ‘Euro-centric’ view of the world would have led us to have few or poorly served customers outside Europe. The American market is no exception to this adaptation process. If the intermediation of funds on blockchain technology brings improvements to the industry, we’ll gladly try to make it available on the market.
Sometimes our products may have been incubated in markets where regulation is more demanding and end up being too sophisticated for markets where offshore is just starting out, but that path, rather than the other way around, is pretty straightforward.
What’s Allfunds outlook for the year ahead (in the US)?
We’re literally just getting started in terms of structure, so we still have an exciting challenge before us: building a team that will join us for the long-term. Our company’s history is that of a passionate team that’s seen this company grow exponentially, expand globally, be listed on the stock exchange…It’s important that whoever joins at this perhaps somewhat more mature time has that same passion. It’s essential in order to make a difference.
From a business point of view, we’re happy. We’ve had a great year in the US despite the pandemic, and although the pipeline is a predictive exercise that we can’t talk about, I can say that it gives us extraordinary peace of mind.Our numbers have been good, despite Covid, and the best is yet to come.
Miami is the fifteenth local office for Allfunds. Will we see the company further expanding its global footprint any time soon?
In our more than 20 years of history, we can proudly say that we’re the only platform operating in over 15 countries and with a non-existent office closure ratio. We like to approach each market humbly and work hard so that we can stay in each market forever.
Coming to a wrap, is there anything else you’d like to share with our readers?
Of course. Our door is always open to discuss any concerns regarding the distribution of international funds. We have the necessary experience and track record to help the industry with these kinds of challenges. This educational work in markets where offshore is still emerging fills us with enthusiasm.
Pixabay CC0 Public DomainWilliam de Gale, gestor del BlueBox Global Technology Fund. William de Gale, gestor del BlueBox Global Technology Fund
ACCI, asset management firm specialized in systematic strategies through its ACCI Dynamic fund family, has signed an exclusive agreement with Swiss fund manager BlueBox Asset Management to distribute its BlueBox Global Technology Fund in Latin America and Iberia (Spain, Portugal and Andorra).
In a press release, the firm has revealed that this 5-star Morningstar rated fund is managed by William de Gale, who was Portfolio Manager for 9 years for the BlackRock World Technology Fund. It was launched in March 2018 and has been backed by a broad range of institutional investors, which has allowed it to recently surpass 500 million dollars in assets under management.
In ACCI’s view, this is possible thanks to its differentiated approach among other strategies in the sector, largely avoiding mega-caps and focusing on enabler-type companies, with strong balance sheets, profitability and strong cash generation. It is a UCITS fund, available on the main trading platforms such as Allfunds, Inversis and Pershing, among others.
“This partnership with BlueBox will strengthen our product offering aimed at institutional clientele in Latam South and Iberia, adding a solid and consistent strategy such as BlueBox’s, with average annual returns of over 31% and 141% since its launch just over 3 years ago”, Antonio de la Oliva, Head of Distribution at ACCI, commented.
Gely Solis, Co-Founder of BlueBox Asset Management, said that this agreement with ACCI, “who have proven their impressive distribution capabilities in key regions” for us, will serve to broaden their investor base, consolidate their growth and “give access to a unique strategy such as BlueBox to a broad typology of investors in the region”.
ACCI continues its commitment to offer a wide range of high value-added strategies to institutional investors, complementing its own strategies with distribution agreements with outstanding alpha-generating asset management firms.
The transition from a fossil-fuelled economy to one powered by renewables carries the promise of being as transformational as the agricultural and industrial revolutions. But as things stand, hopes for containing climate change look ambitious.
New net zero pledges from the US, China and Europe are inadequate. They still leave the world far short of the Paris Agreement goal of limiting global temperature rises to below 2 degrees Celsius from pre-industrial levels. This is why carbon pricing is essential.
According to members of the Pictet-Clean Energy fund’s Advisory Board, a fully functioning carbon pricing mechanism could be the difference between halting climate change and allowing it to spiral out of control. Market forces, they argue, can be a powerful ally, helping change the behaviour of businesses and consumers.
The problem is finding a way to harness them effectively. Currently averaging globally at just USD 2 per tonne of CO2, the carbon market is clearly not doing the job it was set up to do. The International Energy Agency says carbon prices need to rise to as much as USD 140 by 2040 to meet Paris goals.
Breaking the tragedy
Getting there will not be straightforward. As former Bank of England Governor Mark Carney warned, the battle against climate change is hampered by the “tragedy of horizon”. In other words, the current generation has no direct incentive to fix the problem when catastrophic impacts of climate change will not be felt for decades. By making carbon emissions more costly today, however, there is the possibility of avoiding that tragedy.
The World Bank’s modelling has shown that carbon pricing has the potential to halve the cost of implementing Paris targets, saving some USD 250 billion by 2030. One problem is that carbon pricing schemes don’t cover nearly enough of the world’s emissions.
Globally, the carbon pricing market accounts for about 12 gigatonnes of CO2 equivalent – which translates into just under a quarter of all annual global greenhouse gas emissions (1).
The US, the world’s biggest polluter, does not even participate in carbon trading at the federal level while the Paris climate agreement did not include a provision for pricing carbon (2). Industry lobby groups in coal, oil and gas sectors had been fierce opponents too. And then there is a wide divergence in prices from country to country.
European countries set the example. Sweden levies the highest carbon tax in the world at SEK1,190 (EUR 117)/tonne CO2, covering about 40 per cent of its greenhouse gas emissions. In Europe, the world’s biggest and oldest market, carbon prices rose more than five-fold since 2018 to a record high in May (see Fig. 1).
But elsewhere, carbon remains under-priced. According to the IEA, the average carbon prices would need to rise almost 50-fold to USD 75-100 /tonne by 2030 and then USD 125-140 by 2040 to meet Paris Agreement goals.
University of California San Diego researchers believe even that will fall short. Their study puts the social cost of carbon – which takes into account empirical climate-driven economic damage estimations and socio-economic projections – at a staggering USD 417/tonne (3).
The lack of a harmonised market and a unified global carbon price are perhaps the most significant problems. Businesses, especially in energy-intensive industries, may relocate out of countries with high carbon costs into those with laxer emission constraints – in a phenomenon known as “carbon leakage”.
Our advisory board members say renewed international efforts to fight global warming could encourage more countries and regions to start adopting carbon pricing schemes. That should push prices higher in the long term and prevent carbon leakage.
The signs are encouraging. In China, which launched its national carbon market in February, market participants expect the price to average RMB 66/tonne (USD 10) in 2025 before rising to RMB 77 by the end of the decade (4). It has the potential to be the world’s biggest carbon market.
Elsewhere, the American Petroleum Institute, the powerful fossil fuel lobby, is now endorsing the introduction of carbon prices in a major policy reversal that underscored seriousness in tackling climate change.
What’s more, Brussels plans to present proposals to revise and possibly expand its emission trading system in line with the European Green Deal and its new target to reduce greenhouse gas emissions by at least 55 per cent by 2030.
One way to improve the emission pricing system is to expand the use of carbon credits. Governments can give out credits to businesses that lower their carbon footprint with carbon capture and storage (CCS) technology, reforestation activities or energy efficiency solutions.
This way, companies can gain flexibility in complying with carbon pricing regulations.
The discussion on carbon pricing and credits is likely to feature prominently during the landmark UN climate talks in Glasgow later this year as potential cornerstone to supporting climate goals.
Accelerating innovation
An overlooked benefit of effective carbon pricing is that it can also accelerate the pace of innovation in clean energy technologies and promote a faster and broader adoption of products and services that have yet to become commercially viable.
For example, our Advisory Board members say, certain types of hydrogen power generation that combines carbon storage could become cost competitive if carbon prices are set around EUR 60-70 per tonne of CO2.
Other technologies that could become viable at higher carbon prices include advanced power transmission mechanisms and next-generation batteries.
This would have significant benefits. The IEA estimates such technologies alone have the potential to cut global energy sector CO2 emissions by nearly 35 gigatonnes of CO2 by 2070, or 100 per cent of what’s considered sustainable in the same period.
The transition to a decarbonised economy will be among the most wrenching socio-economic shifts humans have ever experienced. Yet even though the survival of the planet is at stake, resistance to change is proving difficult to overcome. A higher carbon price can smooth the path.
(1) Carbon Pricing Dashboard, World Bank
(2) Article 6 of the Paris Agreement provides options for voluntary cooperation amongst countries in achieving their NDC (nationally-defined contributions) targets to allow for higher climate ambition, promote sustainable development, and safeguard environmental integrity
(3) Ricke, K., Drouet, L., Caldeira, K. et al. Country-level social cost of carbon. Nature Clim Change 8, 895–900 (2018). https://doi.org/10.1038/s41558-018-0282-y
(4) China Carbon Pricing Survey 2020
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.
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Pixabay CC0 Public Domain. Jupiter AM nombra seis nuevos analistas para sus equipos de estrategias de inversión
Jupiter AM has announced in a press release the hiring of six new analysts within its sustainable investing strategies, doubling the size of the existing resources and “adding fresh investment expertise to key portfolios”.
The asset manager has highlighted that its sustainability suite of funds offers clients a range of differentiated investment options with a shared goal of generating attractive returns through long-term sustainable investing. Following a strategy refresh earlier this year, Abbie Llewellyn-Waters was appointed as Head of Sustainable Investing, working with Rhys Petheram, Head of the Environmental Solutions team.
The firm is now strengthening its offering with the appointment of new analysts. Specifically, Maiken Anderberg joins the Global Sustainable Equity team as Equity Analyst. Having previously interned with Jupiter’s Sustainable Investing team in 2018, she is returning to the company in a new permanent role, working closely with Abbie Llewellyn-Waters and analyst Freddie Woolfe with a dedicated focus on the Jupiter Global Sustainable Equities strategy
The Jupiter Global Sustainable Equities strategy was launched in 2018 to offer clients an alternative to mainstream global equities by combining financial returns with positive environmental and social returns – enabling clients to participate in the transition to a more sustainable world.
Joining Jupiter in a newly created role, Noelle Guo has beenappointed Equity Analyst of Environmental Solutions. Supporting fund manager Jon Wallace and reporting into Petheram, she will work across the equity strand of Jupiter’s environmental solutions suite. Guo has eight years of equity research experience, joining from an Investment Analyst role at Pictet Asset Management before which she was at AB Bernstein as a Senior Research Associate.
Laura Conigliaro has been named Analyst of the Environmental Solutions team. Having joined Jupiter in 2019 as a member of Jupiter’s Governance and Sustainability team, she will now work directly with fixed income specialist Petheram with a particular focus on fixed income verification, also providing sustainability research into the desk’s environmental impact themes. Prior to joining Jupiter, Conigliaro has held roles at the Inter-American Development Bank and sustainability management consultancy Critical Resource.
Jupiter’s Environmental Solutions suite of funds boasts a 33-year track record and over 890 million pounds in AUM across the Jupiter Global Ecology Growth and Jupiter Global Ecology Diversified funds, and UK onshore vehicles. The strategy looks to invest in companies intentionally focused on providing solutions to sustainability challenges across key environmental themes.
In an internal move, Jenna Zegleman joins the teams as Investment Director. Having arrived at Jupiter in 2018 as a product specialist, she will provide client-facing support across the full range of portfolios in the Sustainable Investing suite.
In addition to these hires, Anisha Arora and James Kearns have joined Jupiter’s Governance and Sustainability team. An emerging markets economist and strategist with 10 years’ experience across sell side research and buy side asset management, Arora joins from Allianz Global Investors and has experience in applying ESG considerations to macroeconomic analysis, as well as to the sovereign debt investment process. Kearns joins Jupiter from BNP Paribas, where he worked initially in CSR within their Global Markets division before moving to become a Sustainable Finance Analyst.
“As we navigate through this global pandemic, the importance of confronting the climate crisis, bridging social inequality and ensuring a sustainable future is more important than ever. By investing in companies leading a sustainable transition across our Global Sustainable Equities and Environmental Solutions strategies we are able to offer our clients a range of attractive and truly innovative solutions that deliver positive outcomes for planet, people and profit”, Abbie Llewellyn-Waters, Head of Sustainable Investing, commented.
Meanwhile, Stephen Pearson, CIO, added: “We are pleased to make these appointments to the team as we continue to grow Jupiter’s sustainability suite, helping us continue to innovate and build on our long heritage of sustainable investing. We are delighted to be making these appointments at this important point in time, cementing support for these key strategies with the addition of specialist insight and investment expertise.”
Andrew Clifton, especialista de cartera de la estrategia T. Rowe Price Funds SICAV Global Value Equity Fund. Andrew Clifton, especialista de cartera de la estrategia T. Rowe Price Funds SICAV Global Value Equity Fund
Over the past ten to fifteen years, value stocks have fallen out of favor with the markets, dramatically underperforming the market. However, according to Andrew Clifton, Portfolio Specialist for the T. Rowe Price Funds SICAV Global Value Equity Fund strategy, from the last quarter of last year, the stars began to align for a recovery in value stocks following the announcement of vaccine developments and the hope of reopening economies and growth, against a backdrop of extremely accommodative monetary and fiscal policies.
The valuation discounts with which stocks have been penalized have been as extreme as those seen almost 20 years ago, with the technology, media, and telecommunications (TMT) bubble in the late 1990s.
Furthermore, the market environment has been positive for value stocks. The strong sell-off experienced in the first quarter of 2020 created opportunities for value managers. Value stocks have clearly rallied over the past 8 – 9 months, particularly since early November. But at T. Rowe Price they still believe that allocations to value equities will continue to generate good returns thanks to the available opportunities and the fact that their fundamentals remain positive.
Examining the potential of value stocks requires taking a long-term perspective. Much of the market only looks at what has happened in the last 10 to 15 years, but if you look over a longer period, value stocks have been generating positive returns for many decades.
According to T. Rowe Price, the last decade, in which value investing has performed poorly, has been the anomaly. So rather than thinking that the value approach is a temporary affair which only works occasionally, many investors need to realize that value investing has a solid foundation and fundamentals. Basically, if you can buy a company for less than its fundamental value, you are talking about a sound investment foundation.
From a tactical point of view, stocks have rallied, but the environment remains quite positive for value. are still trading at a material discount to their longer term 15-year average levels. Also, if you assess the market’s valuation dispersion, it has narrowed from last year’s extremes but is still above normal levels.
In terms of valuation, the expected price earnings multiple over the next 12 months for the MSCI World Value is 16 times, compared to 30 times for the MSCI World Growth. Therefore, there is still a large gap in valuations across all markets globally. Value continues to trade at a discount to growth, which provides a good opportunity for value investors.
Looking at fundamentals and momentum, economies are showing signs of rising inflation over the next 12 to 18 months. The debate now centers on whether it will remain high or whether it will be only transitory. Interest rates will most likely start to rise over the next 2 years. The financial sector is a key player in the value universe and banks are the main beneficiaries of an improvement in interest rates as long as economic fundamentals remain positive.
The Importance of Interest Rates
Technically, if interest rates start to rise, it will reduce the future value of the more distant cash flows which are used to value companies. Many of the growth companies are not generating profits now but are banking on their potential long-term earnings. If interest rates rise, so will discount rates, but it should lessen the attraction of companies that have a long duration and instead favor those companies that are currently generating good levels of return, and this criterion applies to many value companies.
If interest rates cannot fall any further, the debate centers on whether they can either remain at their current levels or increase, the financial sector could benefit in both cases. In the case of banks, at T. Rowe Price they still believe that many banks, particularly in the U.S., will continue to have attractive valuations, as the economy improves, they can generate more capital and growth, and their valuations are already attractive at current levels. To some extent, there is a free option on the possible increase in interest rates at some point. According to the expert, it is not something that will happen overnight, but at some point, it will come to that because interest rates cannot fall below current levels.
Types of Value Stocks
Looking at the higher quality stocks, those that are referred to as “free cash flow” companies because of their ability to generate cash flows, are companies with good balance sheets that are going through a period of greater uncertainty or a problem that has raised concerns in the market. This provides an opportunity for T. Rowe Price’s managers who are looking for these types of opportunities in sectors such as pharmaceuticals or healthcare, where there may be some concern among some companies about losing patent protection or the possibility that drugs in development may not generate the expected profits in the future. At T. Rowe Price they work with analysts to understand the reality of a market and if they perceive that there has been an overreaction, new positions would be added to the portfolio.
Other examples of stocks with high cash flow generation are the utilities, which may have a more defensive bias, but may face uncertainty regarding regulation or capital allocation, and the consumer staples sector, where there may be concern about new market entrants.
On the “Deep Value” side are companies with lower balance sheet quality and higher levels of risk which, even if they have been bought at a significant discount, still have the potential to fall in price if the situation worsens beyond expectations – sometimes these are not just operational risks, they can also be financial or strategic risks, which is why at T. Rowe Price they strive to understand them better than the rest of the market. However, should the situation develop positively, they also have greater upside potential. When the strategy favors a greater weighting in “Deep value” stocks over cash flow generating stocks, they are trading a higher level of risk for greater upside potential.
Positioning by Country and Sector
Since the global economies began their reopening process, the T. Rowe Price Funds SICAV Global Value Equity Fund strategy has had greater exposure to emerging markets, Japan, and Europe and a lower weighting to the United States. The main reason behind this positioning is the greater efficiency of the US market in reflecting the recovery of the economy in share prices.
At approximately two-thirds, the US has a dominant position in the MSCI World Value index. However, at T. Rowe Price they prefer to include some exposure to emerging markets, with around a 10% weighting. The lower weighting of the US against the index funds their position in emerging markets.
By sector, they have maintained an overexposure in the financial sector since the launch of the strategy. T. Rowe Price believes that the market structure is particularly positive for US banks, in stark contrast to their counterparts in Japan and Europe.
The IT sector generally has a growth bias, but this does not imply that T. Rowe Price’s strategy does not have exposure to some segments. For example, the semiconductor industry has undergone structural changes that have not been appreciated by the market, which has continued to value them as cyclical companies. This is something that the management company has perceived as an opportunity. They have recently reduced their portfolio exposure from 10 to 6 names, the main reason being that valuations are already at their peak, with little upside left.
The Inclusion of ESG Factors
Value investing tends to have a higher ESG risk by its very nature, because it is more likely to have a higher carbon footprint, for the production of real assets, or to have a higher volume of fixed assets than a growth company, in which patents and software development have a greater weight. This increases the importance of integrating ESG criteria into the investment process. To this end, T. Rowe Price has an integrated team of ESG analysts.
When it comes to managing downside potential, there is always a risk of falling into a “value trap”. This risk is increased when investing based on valuations and ESG risk factors are one way to assess these value traps. In some cases, the market may overly penalize a security, presenting opportunities to invest. One example is Volkswagen, which a few years ago was embroiled in an environmental and ethical scandal over its vehicle emissions, but over the years its business model has undergone a transformation, and T. Rowe Price believes it will be one of the winners in the electric vehicle market.
