Are too many investors chasing the same names? It’s a question we’ve had from a couple of clients and prospects in recent meetings. We’ve previously written that we believe that the Kames Global Sustainable Fund investment philosophy is different which means we invest in different things to the majority of our peers…………but of course we would say that!!! Are we actually just investing in the same stuff?
These questions make a recent research note from Goldman Sachs timely. Goldman’s have completed a couple of exercises now looking at the most widely owned stocks in ESG orientated funds globally. The table below is taken from the most recent piece and shows those names which appear most frequently- specifically in two ways, firstly based on the stock’s weight relative to their market capitalisation and secondly the absolute percentage point overweight, relative to their share of a global benchmark (MSCI ACWI)).
Source:Revisiting the ‘ESG Nifty Fifty’: The Rise of Impact, Goldman Sachs Equity Research, 2 Dec 2019
Some well-known and loved ESG favourites. And on reading this, naturally our next question was, ‘How many of these companies does the Kames Global Sustainable Equity Fund hold?’ (The answer is two btw – Kingspan and Relx). Albeit, we have held some of the others in the past, but sold them, often because of their valuation. That’s right, just being sustainable doesn’t necessarily make something a good investment! (Although we do believe it can help). We are passionate advocates for ethical and sustainable investing, but we mustn’t ignore the risk of an ‘ESG bubble’ developing in any asset class.
Which also makes Christine Lagarde’s first speech as the incoming European Central Bank’s President worth flagging here. In it, she hinted she may want to harness the institution’s asset purchase program to fight climate change. What does this mean in practice? Assuming the EU can agree more standard definitions of ‘green assets’, it likely means buying green bonds, albeit the green bond universe is still small. It’s a radical proposal and departure from traditional monetary policy (specifically the principle of market neutrality to avoid bubbles)… albeit consistent with the narrative of other central bankers. But the climate crisis requires radical solutions and the ECB’s balance sheet could play a significant role in speeding up the green transition. Investors just need to be mindful of the potential unintended consequences of a desire to do the right thing.
Kingspan Group Plc and Relx Plc are held in the Kames Global Sustainable Equity Fund as well as other Kames Fund portfolios. Other company names listed in the table above whilst not held in the Kames Global Sustainable Fund, may be held in other Kames Fund portfolios.
About the author
Ryan Smith is Head of ESG Research at Kames Capital. He joined Kames Capital in October 2000 as an SRI analyst and was appointed to his current position in September 2002. He has 19 years’ industry experience*. His role involves managing the team that conducts the ESG screening process for our Responsible Investing funds. Ryan’s team also provides corporate governance screening and research for all equity investments, and conducts research into environmental and social issues. Before joining us, he worked as an environmental chemist for Severn Trent Water. Ryan has an MSc in Environmental Chemistry from Nottingham Trent University.
*As at 30 November 2019