Pixabay CC0 Public DomainFree photos. US Companies are at the Forefront of Another Outstanding Period of Results on a Global Scale
Since the beginning of the year, equities have positioned themselves as one of the most attractive assets for investors given the risk / reward ratio that it offers. Therefore, asset managers have been calibrating and searching for the best combination of US, European, and emerging market equities. According to the asset management companies, this will continue to be a fundamental piece in the portfolios for the second part of the year.
Although historically summers are a quiet period, logically there are also some exceptions, sources at DWS point out that this year “the growth of some shares, for example Facebook, has been afflicted, and defensive stocks have outperformed the behavior of the most cyclical securities. In fact, some cyclical stocks obtained poor results, while sovereign bonds barely moved.”
US equities stood out due to the good behavior of business profits which, as was to be expected, increased thanks to the fiscal reform that was already noticeable this quarter. According to Richard Turnill, Global Head of Investment Strategy at BlackRock, “the strength of corporate profits, especially in the United States, will continue until the end of the year, as the optimistic forecasts of companies show that confidence is on the rise”.
In his opinion, US Companies are at the Forefront of another outstanding period of results on a global scale. According to his analysis, firms that exceeded expectations have been rewarded with a rise in prices, even in spite of investors’ concerns about the increase in economic uncertainty, trade tensions and the appreciation of the US dollar. “Our analyses of business forecasts suggest that business confidence is on the rise, which provides us with the basis to affirm that the soundness of profits can be perpetuated in 2018 in a context characterized by the robustness of global growth,” says Turnill.
In his opinion, US Companies are at the Forefront of another outstanding period of results on a global scale. According to his analysis, firms that exceeded expectations have been rewarded with a rise in prices, even in spite of investors’ concerns about the increase in economic uncertainty, trade tensions and the appreciation of the US dollar. “Our analyses of business forecasts suggest that business confidence is on the rise, which provides us with the basis to affirm that the soundness of profits can be perpetuated in 2018 in a context characterized by the robustness of global growth,” says Turnill.
But all that glitters is not gold, especially in the United States. “The downside is that American companies are seeing more pressure on the cost of raw materials and wages. There have also been quite a few companies in the United States that have pointed out the negative effects that the increase in tariffs has on them, whereas European companies have taken advantage of the opportunities that trade tension has generated,” DWS points out in its latest report.
Once again, the United States and Europe are the markets where investors and asset managers find more opportunities for equities, after the exit of flows from emerging countries due to the effect of the strength of the dollar. According to Union Bancaire Privée (UBP), the strength of the dollar must be added to the political uncertainty generated by the US administration with its trade policy. “In our opinion, investors have become excessively pessimistic about emerging markets’ assets, and a stabilization of the dollar should allow a rebound in emerging market stocks,” UBP explains in its latest report.
The entity is cautious and prefers to follow strategies that allow them to participate in equity growth through hedge funds, strategies that protect capital, and convertible bonds, avoiding direct investment in shares. “Within equities, we have expanded our underweight in Europe given the constant political fragility that is projected, and a more moderate economic growth. On the other hand, Euro-zone shares are more attractive than US equities, while offering a modest perspective of earnings growth,” he argues egarding his position towards the end of the summer.
Pixabay CC0 Public DomainOimheidi. After the Trade Storm of Summer, what do the Last Four Months of the Year Hold in Store?
All analysts point to several elements as the protagonists towards the end of the year: Geopolitical tensions in the face of a possible commercial war, rising interest rates on the horizon, the Brexit negotiations, and the confidence in fundamentals that suggest that Global growth will continue.
For some experts, such as Olaf van den Heuvel, Head of Investments at Aegon Asset Management, the markets are behaving well and will continue to do so for the rest of the year, despite the constant background noise generated by the economic situation, geopolitics and the associated volatility.
“As we anticipated, the most prominent feature so far in 2018 has been the reappearance of market volatility in most asset classes. Volatility is often synonymous with good news for active fund managers, as it allows us to provide added value through fundamental analysis and a good selection of securities. In addition, volatility has not prevented most economies from maintaining a steady growth rate. To date, the year has been marked by a continuous flow of events that have focused the attention of the markets at one time or another, from the abrupt stock market corrections to the widening of the Libor spreads, Italian politics, and the depreciation of emerging market currencies. Although these events caused strong fluctuations in the markets, within a matter of days they were already of secondary importance,” says Van den Heuvel.
According to this expert, it isn’t difficult to identify the events that will affect the markets in the coming months: “Trade policy has become a central issue and will continue to be so long as Donald Trump continues to apply tariffs on Chinese goods. The Chinese economy is already somewhat weakened in itself after the strong corrections experienced by both its currency and its stock markets. I think fears about the sustainability of the Chinese growth model will come to the fore some time during the year, as well as the possible repercussions of the agreement, or lack of agreement, on Brexit.”
At Lombard Odier they share the same theory, as they believe that “trade tensions will remain restrained, although we must admit that the possibility of a trade war has become a risk that deserves our utmost consideration.”
Regarding this summer period of tweets and tensions that we are just about to conclude, the team of economists at Schroders, are wondering as to just how real the “calm” we are experiencing really is. “Concerns about China, the weakening of commodity prices, and the appreciation of the dollar, all point to a period of slower growth for the global economy. The trade wars have probably generated a rebound and later a fall, as importers advanced their expenditure in order to avoid higher tariffs and now they are reducing it again”
Macro analysis
Looking at the fourth macro, at Lombard Odier they point out that the global environment does not favor the growth of emerging markets, “although the most affected countries to date have been those with weaker fundamentals or greater political risk.” For the United States, it foresees, in the short term, that the Fed will not accelerate the adjustment of its policies and that the economy of the Euro-zone will suffer specific falls, rather than sustained ones.
In this regard, Schroders points out that, unless trade wars hurt “business confidence and investment, the global economy should recover, but the combination of tariffs and tax cuts is likely to lead to an increase in inflation in the U.S”.
Pixabay CC0 Public DomainWenPhotos. Are we Heading Towards a Political Crisis in the Eurozone with Italy?
The risk of a new sovereign crisis in the Eurozone seems to have come to a halt after the uncertainty caused by the Italian elections and the subsequent formation of a populist government. At the end of the second quarter, Italy became the center of attention and the fear of contagion resurfaced again. Will Italy – and the rest of the peripheral markets – endure the political noise? Noise such as that caused by the Italian Deputy Prime Minister and leader of the 5 Star Movement, Luigi Di Maio, when he affirmed that the government would not ratify the free-trade agreement between the EU and Canada (CETA). These types of statements generate uncertainty in the market and concern for international investors, as what happened with Greece during the economic crisis still remains fresh in their memory.
This is where asset management companies reassure and argue that we are not facing the same case. “As simple as the idea that we are facing a Greece II may be, there are several factors that override this perspective. On the one hand, the Italian economy is much larger: it represents approximately 15% of the economic activity registered in the Eurozone, compared to 1.6% for Greece, and traditionally, its economy and banking system are considered much more integrated with the rest of the Eurozone. Italy is also the third largest debtor in the world (130% of its GDP), after the United States and Japan. In addition, according to the figures handled by Deutsche Bank, only 40% of this debt has domestic creditors: foreign investors (around 35%) and the Euro system (approximately 18%) account for the majority,” Robeco sources explain.
Likewise, they consider that the contagion to other countries, especially the peripheral ones such as Spain or Portugal, is low. According to Oliver Marcoit and Guilhem Savry, Managers of Multiactive Strategies at Unigestion, contagion is very limited given the consolidation that exists in the Eurozone since the European debt crisis.
Spain has its own problems, however, and the vote of no confidence that took place in June revived market tensions, since the markets are taking into account the risk that populist parties will gain access to executive functions. The combination of political risk in both Italy and Spain would weigh on European assets as a whole, with the spreads of the peripheral government and the Euro at the forefront,” warn Marcoit and Savry.
Italian Risks
That the risk of contagion is low, or that Italy’s context is totally different from what Greece was, does not exempt it from having a long list of tasks ahead to avoid weakening the European project. According to Philipp Vorndran, Market Strategist at Flossbach von Storch, Italy is at a moment of transition and exposes its public coffers to a new challenge, which will only be viable if interest rates are maintained at the current level.
In fact, the “Government for change” proposed by Italian Prime Minister Giuseppe Conte is a challenge for the public coffers and may lead to a greater imbalance than expected. According to a study by Flossbach von Storch’s Research Institute, the net negative fiscal impact of the proposed measures could reach 100 billion Euros per year. Amongst the proposed measures are the reduction of fuel taxes, the repeal of the recent pension reform, and the creation of an income for citizens living below the poverty line. Minister Conte’s plan, however, does not clarify how he plans to finance these and other measures. On the one hand, VAT remains unchanged. On the other hand, the reduction of expenses, such as the abolition of “golden pensions”, limitations on international missions, and the elimination of the life pension for members of parliament, does not release enough capital to finance the measures provided for in the coalition agreement. According to this study, the financial hole in public coffers could reach 120 billion Euros.
According to Vorndran, it also seems unlikely that these measures will significantly boost economic growth and improve the trade balance. “Half of the proposed measures would have a negative impact, going from the current 132% today to 141% of the GDP until the end of the mandate. As long as Italy’s economy maintains the growth rate of the last five years and the ECB extends its favorable monetary policy for the refinancing of costs,” he says.
Foto cedida. Should Investors be Worried About EM Contagion?
Emerging markets are in free fall. The main reasons for the decline are the recent US dollar strength, trade war fears, and, more recently, the sharp devaluation of the Turkish lira. The abrupt sell-off evokes memories of the Mexican peso crisis of 1994/1995, the Asian financial crisis of 1997/1998, and, more recently, the Chinese devaluation and stock market turbulence of 2015/2016. Should investors be worried about emerging market contagion?
The crisis in Turkey is hardly surprising. Its economy suffers from a large trade deficit (6.3% of GDP), high external funding needs, and rising inflationary pressures. Consumer price inflation surged from around 10% at the beginning of the year to above 15% by June. Nevertheless, the central bank left the policy rate unchanged at 17.75% at its July policy meeting. It became evident that President Erdogan’s criticism of higher interest rates has undermined central bank independence. This opened the door for bets against the lira. There is hope that a more comprehensive policy, combined with fiscal and monetary austerity, could stabilize the currency and avoid an inflationary spiral, although this could push the economy into a recession in 2019. The good news is that there are only minor economic links between Turkey and other emerging markets.
More importantly, Turkey’s major emerging market peers are in better shape. Fundamentals are healthy, with improved trade and fiscal accounts and low inflation. Foreign debt levels are not excessive and a number of major countries, especially China, have sizeable hard currency reserves in place. Demographic factors also continue to be favorable in comparison with advanced economies. Finally, there is a tendency toward structural reforms, stronger institutions, and anti-corruption policies that should improve longer-term financial stability. For now it appears that China and Brazil are the only countries that could trigger a deeper financial crisis, due to their size and rising sovereign-debt (Brazil) and corporate-debt (China) levels.
Brazil has initiated an ambitious reform process. The country is at an early stage of an economic recovery following the sharp recession of 2015/2016, since when the trade deficit has been largely eliminated. Inflation and interest rates are low in comparison to what they have been. This, together with significant hard currency reserves and a direct swap line with the US Federal Reserve, gives the central bank plenty of room to counterbalance pressures and defend the foreign exchange rate. The problem is that Brazil needs economic growth to offset its souring public debt levels, meaning that the reform path needs to be continued. Volatility is therefore likely to persist ahead of the upcoming presidential election in October. However, given the illegibility of former president Lula, the most likely outcome is still a relatively market-friendly, though populistic, center-right government, which could lead to a relief rally.
China has started to transform and modernize its economy and this should lead to more sustainable and robust, albeit somewhat slower, economic growth. Policy measures in the past two years have included a reduction of fiscal and monetary stimulus to deflate the housing bubble and reduce local and corporate debt levels. Economic growth has continued to slow at a moderate pace, from above 7% to around 6.5%. The recent depreciation of the yuan is no great surprise, given the general US dollar strength as well as the narrowing growth, trade deficit, and interest-rate gaps compared to the US. Of course, the main risk is an escalating trade war. Given President Trump´s rising approval ratings and recent political scandals around his lawyer and campaign manager, he may continue to play tough to please his main supporters. Trade tensions could therefore intensify ahead of the US mid-term elections in November. However, China has already started to implement small policy adjustments to bolster the economy’s defenses against the negative impact of US tariffs, which should start to become visible in Q4. Even if the US imposes a 25% tariff on another USD250bn of Chinese goods, the growth drag should be less than 1% and an additional stimulus should help keep GDP growth above 6% in 2019. In a more market-friendly scenario, Trump’s tone could become more reconciliatory once the elections are over.
In fact, Trump’s introduction and threats of tariffs and other sanctions have been the main drivers of the recent USD rally, which has been the biggest headwind for emerging markets. Given the extensive media coverage, and as Trump has already threatened to impose tariffs on basically all Chinese imports, a lot of bad news must be priced in. Nevertheless, markets hate uncertainty and volatility is likely to remain high throughout the political campaign period in the US, and to a lesser degree in Brazil. Unless the situation gets completely out of control, we may well see a catch-up rally toward the end of the year.
Pixabay CC0 Public Domain . Fintech and Machine Learning Among New Topics for the CFA Program Curriculum in 2019
CFA Institute, the global association of investment management professionals, has introduced its 2019 CFA® Program curriculum for June and December 2019 exam candidates. Guided by a robust practice analysis process that tracks how the investment management profession changes over time, CFA Institute regularly updates its curricula to arm candidates with the skills and knowledge needed for success in the rapidly evolving industry.
“The integration of next-generation knowledge into our curricula on emerging topics like fintech and machine learning ensures our candidates are fully prepared to not only have a place in the industry, but to lead it,” said Stephen M. Horan, CFA, CIPM, managing director of credentialing at CFA Institute. “It is challenging to keep a nearly 9,000-page curriculum up to date, and we take that task very seriously to prepare the next generation of investment managers for the demands of the global capital markets.”
The CFA designation is one of the most respected and recognized investment management designations in the world, and its reputation and that of CFA Institute depend upon maintaining a comprehensive “gold standard” curriculum. To ensure its integrity and relevance, the organization gathers input from practicing investment management professionals, university faculty, and regulators around the globe, who help identify and prioritize the CFA curriculum areas to be added, deleted, or revised.
The 2019 CFA curriculum update includes a total of 10 new readings and major revisions and improvements to 18 existing readings. Among the highlights:
Fintech enters the CFA Program curriculum at Level I and II, surveying the range of technologies and financial applications in investment management, new content on Machine Learning, and ethics cases within a fintech work setting.
New content for Level III in Equity Portfolio Management reflecting the latest practices in the areas of both passive and active equity investing.
New Level III content on Professionalism in Investment Management explaining the characteristics of investment management professions and CFA Institute as a professional body.
20 sets of practice problems supporting new curriculum content.
Candidates study approximately 1,000 hours on average to master nearly 9,000 pages of curriculum. Its depth and breadth provides a strong foundation of advanced investment analysis and practical portfolio management skills, which gives investment professionals a career advantage. To earn the charter, candidates must pass all three levels of the exam, considered to be the most rigorous in the investment profession; meet the work experience requirements of four years in the investment industry; sign a commitment to abide by the CFA Institute Code of Ethics and Standards of Professional Conduct; and become a member of CFA Institute. Less than one in five candidates who begin the program actually become CFA charterholders, a testament to the determination and mastery of professional competencies demonstrated by successful candidates.
Pixabay CC0 Public Domain. Jupiter Makes Two New Senior Appointments to its Team
After Jupiter’s appointment of William Lopez, who is leading the firm’s distribution efforts in Latin America and US Offshore, the firm continues to strengthen its distribution capabilities to support its growth in international markets with two key hires. Nick Anderson joins as a Senior Adviser for the Middle East and Africa and Paul van Olst joins as Head of Netherlands.
Nick will be looking at opportunities to further develop Jupiter’s footprint across all sales channels in Middle East and Africa where Jupiter already has relationships with selected third party distribution partners. Nick has over thirty years’ experience in the industry, with a strong reputation in the Middle East and Africa. He was most recently Country Manager and Head of Institutional Client Business for the Middle East & Africa at Blackrock.
Paul, who will be based at the newly-established Jupiter office in Eindhoven, will be responsible for the set up and build out of Jupiter’s business in the Netherlands. Paul joins from Fidelity International where he worked for 15 years in various sales management roles in the Netherlands and Benelux, most recently as Head of Distribution, Netherlands. Prior to this, Paul worked for over ten years at Zurich Financial Services in the Netherlands.
Nick Ring, Global Head of Distribution, commented: “We are very pleased to have attracted three experienced and highly-respected individuals to spearhead our business drive in their respective regions. Our strategic priority has been to expand our international business in a considered way and where we find the right people to communicate Jupiter’s investment expertise to potential investors. The appointments of Nick, William and Paul are a natural next step to broaden and deepen our global growth story.”
Since the start of July, EMD assets have bounced with local and dollar debt markets up. According to Investec Asset Management, the positive returns reflect the still solid fundamentals across most of EM and the extent of the sell-off in Q2 reinvigorating value into the asset class. However, Turkey has been the noticeable exception – it is the only country to have a material negative return.
Grant Webster, Portfolio Manager, Emerging Market Fixed Income at Investec believes that “the drivers of recent weakness have been the same drivers that have weighed on the country’s markets over the medium term; namely a lack of credibility at the central bank, an unwillingness or inability to address external vulnerabilities and, related to both these points, a troubling political backdrop of heterodox macro policy and increasing authoritarianism.”
For Webster, both domestic and foreign politics are headwinds for investors. Relations with the US have also worsened, which speaks to the ongoing deterioration in relations with the West, and “since Erdogan’s election victory in June, there have been several moves that have rattled investors including, changing the rules to make the central bank governor a political appointee. Moreover, the appointment of his son-in-law (and potential successor), Berat to head up the finance and treasury ministry.”
He also mentions how the July meeting of the central bank disappointed markets after, and despite both core and headline inflation surprising more than a full percentage point higher, rates were kept on hold and the forward-looking guidance was left unchanged – “the optics couldn’t have been much worse given the fresh concerns about the politicization of the central bank,” he states. Webster also notes that the current account deficit remains above 5% and that net foreign-exchange reserves keep on dropping, while the currency’s weakness is exerting major pressure on corporate balance sheets.
According to Webster, Turkey is now in very challenging waters but there are some measures it can take to navigate the risk. “The major supporting factor for Turkey is that the government has relatively low levels of debt. Even under our severe scenario analysis debt levels remain manageable. However, if the government is going to take advantage of this supportive starting point, then at the very least we think they need to”:
Hike rates by around 500-700bps to take rates to 23-25%
Tighten fiscal policy including by increasing fuel and energy prices
Act to prevent more damaging US sanctions by re-engaging with the West at the highest level
Put in place plans to establish a “bad bank” which could take on non-performing loans from the banking sector in return for capital injections
“Taken together this would stem local demand for dollars, curb inflation expectations, reaffirm fiscal prudence and bolster investor confidence. However, what Turkey needs, and what the government does, are separate questions. If the government delays and the situation continues to deteriorate, we believe the government may need to source around $50bn to finance a bank bailout, as well as increase FX reserves”. As they see it there are perhaps three possible scenarios for how they may try to achieve this.
Seek IMF and Western support- The best outcome is also the least likely: a return to orthodoxy.
Seek support elsewhere: China, Russia and Qatar are potential sources of funding- Given his seeming antipathy towards the West, Erdogan might turn eastwards:
Local ‘solution’- A materially worse outcome than either would be something more akin to autarky
“Turkey is between a rock and hard place. The authorities have some tough decisions to make, but seem unwilling to recognise the scope of the fragilities or take sufficient steps to address them. Ultimately, the market will impose a reckoning. At some point the value that has opened up might start to look like an attractive entry point, but much will depend on the choices made by the authorities. For now, we remain relatively conservatively positioned across portfolios, preferring opportunities elsewhere in our universe where we see better fundamentals and more constructive policy-making.” Webster concludes.
Pixabay CC0 Public DomainPhoto: xxoktayxx. Turkey’s Crisis: Policy Response Disappointing So Far
Turkey is in the midst of an economic crisis. On August 10th their assets suffered greatly and their currency has fallen to historical lows after President Trump said last week he was doubling the amount of steel and aluminum tariffs on the country. On Wednesday, Tayyip Erdogan doubled import tariffs on some US imports (cars, alcohol, tobacco, cosmetics) and a Turkish court rejected an appeal for the release of a jailed American pastor at the center of the spat between Ankara and Washington.
The Turkish economy remains vulnerable as its current account deficit is the widest among emerging markets (The United States had a trade surplus with Turkey in 2017 of nearly 330 million dollars) and inflation levels are nearly three times the central bank’s target. Aneeka Gupta, analyst at WisdomTree mentions: “The perception from the investment community is that monetary policy in Turkey is not independent as President Erdogan is opposed to higher interest rates, so the central banks would need to defy the president and raise rates to defend the currency and avoid a default scenario.”
According to Delphine Arrighi, fund manager, Old Mutual Emerging Market Debt Fund, Old Mutual Global Investors, the worsening of political tensions between the US and Turkey has been the final blow to an already dire economic situation, with the collapse of the lira now rapidly fuelling concern of a full-blown currency and debt crisis given the amount of USD-denominated debt in the private sector. More over, the meetings between the banking regulator and the central bank over the weekend haven’t yielded the results the market was expecting. “Although the recent measures announced by the Central Bank of the Republic of Turkey (CBRT) will aim to ease onshore liquidity, they will fall short of restoring investors’ confidence. At this stage, the lack of credible policy response is pushing Turkish asset prices into a tailspin” Arrighi mentions adding that “given the reluctance of the CBRT to hike rates at its previous meeting and President Erdogan’s recent comments blaming an international conspiracy rather than acknowledging the real economic crisis resulting from an overheating economy faced with tighter global financial conditions, there is little hope for a return to orthodox policies at this stage”.
Arrighi suggests to include capital controls, “which seem more likely than an appeal to the IMF, but that would certainly not be the least painful and would most likely precipitate a recession while postponing the return of portfolio inflows. Hence a sizable rate hike followed by drastic measures of fiscal consolidation still appear as the most viable option to re-anchor the lira and pull the Turkish economy from the brink. This is very much like what Argentina had to deliver. We doubt the political will is there in Turkey and so more pain might be needed to force policy action. Some resolution of the political spat with the US could lead to some near-term relief in the currency, but this is unlikely to be sustainable if not accompanied by credible economic actions.”
Ranko Berich from Monex Europe mentions that “Normally when a currency falls 10% in a day, political and monetary authorities scramble to promise fiscal discipline and central bank independence. Instead of doing this, Erdogan has reached for the crazy stick and given the lira another whack in a rambling speech that focussed more on combative rhetoric than addressing market concerns… The lira’s issue now isn’t if the central bank is willing to raise rates high enough to combat the coming inflationary shock, but one of credibility. Erdogan’s son in law and economy chief, Berat Albayrak, also gave a speech in which he spoke in favour of central bank independence, so this may represent a sliver of hope for the lira. But the pressure is now on the TCMB to announce a drastic tightening of monetary policy in the order of a 5-10% increase in rates to demonstrate that it has the political mandate to fight inflation and stem the lira’s losses.”
Dave Lafferty, Chief Market strategist at Natixis Investment Managers, adds that: “This risk to EM contagion is sentiment, not fundamental. Turkey has limited trade and economic ties to other EMs. However, market reaction can throw the baby out with the bathwater as we see with other fragile EMs like Argentina and Hungary, who both saw steep currency losses in sympathy with the lira. Argentine CDS also spiked although Hungary CDS held reasonably steady.”
Wikimedia CommonsCourtesy photo. Natixis appoints Jean-Philippe Adam Senior Country Manager, Corporate & Investment Banking, Spain and Portugal
Jean-Philippe Adam has been appointed Senior Country Manager, Corporate & Investment Banking (CIB), Spain and Portugal at Natixis, since July 24, 2018. He retains his current duties as Head of Natixis’ CIB business in Latin America and coordinator for CIB business in Canada. He reports to Luc François, Head of EMEA, CIB and Head of Global Markets, and to Stephane About, Head of Americas, CIB.
Jean-Philippe Adam has over 30 years of banking experience in the Americas and Europe. He began his career at Société Générale in Buenos Aires before moving to Crédit Lyonnais in Buenos Aires and Paris, then to Crédit Agricole Securities in New York where he was Head of Debt Origination for Latin America. He joined Natixis in 2013 in New York as Head of the CIB Latin America platform and in 2017 was made responsible for the coordination of Natixis’ CIB operations in Canada.
Marc Vincent, Global Head of Corporate & Investment Banking, said: “Jean-Philippe has shown great success over the past five years, building our franchise in Latin America and implementing our client-focused and innovative approach in the regions he oversees. He will bring the same dynamism and ambition to our business in Spain and Portugal, ensuring that we provide our clients in the region with the full benefits of Natixis’ Corporate & Investment Banking expertise.”
CC-BY-SA-2.0, FlickrMasja Zandbergen, Head of Sustainability Investment and Integration of ESG criteria at Robeco / Courtesy Photo. According to Robeco, Sustainable Investment Gains Sense Within a Context of Erratic Returns
In 1999, Robeco launched the Robeco Sustainable Equity Fund, one of the first sustainable funds in the market. Since then, and almost 20 years later, the asset management company continues to insist that we are not facing a trend, but rather a new way of understanding investments and the environment. “The time has come to take advantage of the wave of popularity of sustainable investment to make a real change in the way we invest,” says Masja Zandbergen, Head of Sustainability Investment and Integration of ESG criteria at Robeco.
For Zandbergen, sustainable investment is a response to the reality surrounding us, which explains the success it’s having among investors. “There are certain megatrends which justify the weight gain of sustainable investment. Climate change, increasing inequality, and cyber security are three clear trends. To these we must add the great change suffered by consumer behavior, something that is also transferred to finance. Investors not only want profitability, but to be responsible with their current environment and with that of future generations”, she points out.
In this regard, Zandbergen argues that just as there has been a change in the investor, there has also been a change in the way in which this type of investment is approached: “Whereas previously investment was sought in certain activities and when a company did not act in a sustainable manner, investors tended to sell those assets, the current approach is to help companies to meet their challenges in terms of ESG criteria, something that investors also value more because they consider that it has a greater impact and greater capacity for change,” she says.
Evidence of how sustainable investment has changed is the evolution of the common investment strategies. “Exclusion continues to be the most common strategy, but the strategies that grow most among investors are those of integration of ESG criteria in impact analysis and investment, proof of which is the popularity of the thematic funds,” explains Zandbergen. In fact, these grew by 13.3% and 20.5% between 2014 and 2016, according to Robeco’s global data.
The management company argues for a comprehensive vision of sustainable investment because it provides valuable data to the non-financial analysis they carry out. “We looked at the ESG fundamentals and criteria and, in 35% of cases, we found that these had a significant impact on the financial analysis. In an erratic world of profitability, I believe that sustainable investments have earned their place,” she concludes.
Another trend observed by Zandbergen regarding sustainable investment is that there is increasing evidence that ESG criteria are an engine that drives the good behavior and profitability of an asset. In her opinion, “it’s clear that sustainability is a factor that influences the valuation of an asset simply because of the risks it avoids”. One further step would be, according to her criteria, that you could come to consider a factor when investing. “We are still far from something like that, but there is growing evidence of the fact that, in the long term, these criteria add value,” she insists.
