So far, the defining factor of 2020 has been its uncertainty. After COVID-19 caught the world by surprise, the pandemic quickly grew into an unprecedented global crisis. Governments, populations and businesses have been forced to adapt to the new ‘normal’, changing the way we live, and also the way we invest.
The growing awareness of sustainable investing
Europe, for example, has experienced a surge of inflows in sustainable funds. As at end of July, sustainable funds have raised just over +€97bn year-to-date, against outflows of -€27.9bn for non-sustainable funds[1]. The crisis has acted as a wake-up call with companies trying to take better care of their stakeholders, whilst coping with external uncertainties. Investors have also realised they can get more from their investments, generating positive returns while using their capital in more meaningful ways. A study has shown that in recent years, funds investing in companies with a strong approach to the management of Environmental, Social and Governance (ESG) risks have outperformed their benchmarks[2].
In a year when uncertainty has thrown everyone off course, sustainable investing seems to offer investors the certainty they crave.
The dual benefits of sustainable investing
Backing companies with strong ESG management could be beneficial - from both a risk management and alpha generation perspective. The harder you work to identify risks, the more you can do to mitigate them. Early monitoring and detection of high-impact threats to a company's long-term success - such as poor governance, shareholder underrepresentation, negative environmental impact, and indifference towards social issues, helps to avoid unpleasant surprises in the future.
Similarly, adopting well-considered ESG criteria for assessing companies can place investors ahead of the game. Companies that make positive contributions to the planet and society can be high-potential investment opportunities. Those that enjoy meaningful relationships with their suppliers, employees and the wider community, have positive characteristics that may help them to be more resilient over the long-term.
As investors adapt to the new ‘normal' of an uncertain world, it makes sense to seek sustainable and responsible investment funds. Carmignac's Mark Denham, within his European (ex-UK) equity strategy, looks for 35-40 high-conviction names, companies demonstrating high long-term profitability that reinvest these profits for future growth; but also underpinned by strong social responsibility credentials. He has been finetuning this investment approach since 2003 and has learned to seek out hidden opportunities in European equities - as demonstrated by his Citywire AAA-rating[3]. There are many quality companies in Europe, all it takes is the right approach.
[1] Source: Morningstar as at 31/07/2020. Scope: Equity, Allocation, Fixed Income and Alternative open-ended funds and ETFs domiciled in Europe with a "Sustainable Investment - Overall" tag.
[2] As measured by MSCI Europe, Emerging and USA equity indices vs corresponding same regions MSCI ESG Leaders indices year-to-date, one year, two years, three years and five years, as of 05/05/2020.
[3] Source and Copyright: Citywire. Mark Denham is AAA-rated by Citywire for his rolling three-year risk-adjusted performance across all funds he is managing to 30/06/2020. The reference to a ranking or prize is no guarantee of the future results of the UCIS or the manager.
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