This is a sponsored article from Pictet AM.
In search of diversification away from concentrated fixed income exposure, Asia’s yield-hungry high net worth individuals have begun investing in disruptive tech equities for growth. This is perhaps best evidenced by a stellar inflow pick-up year-to-date amongst tech-related funds focusing on future innovations. As an extension of this megatrend, Pictet Asset Management urges investors to explore the vast universe of investable technology companies to capture the next growth phase, specifically in critical issues regarding the environment.
Leveraging upon decades of thematic investing experience, during which the firm has garnered critical acclaim and amassed over US$185 billion in assets under management (AUM), Pictet Asset Management shares its insights into one of the biggest global megatrends of the coming era: the rise of green tech.
A US$3 trillion market by 2020
According to the Swiss asset manager, the investable universe within the ‘global environmental opportunities’ space is already worth US$2 trillion and it is expected to soar to US$3 trillion by 2020. The median projected sales growth rate of this segment of the market is 5.9% (from 2016 to 2018), ahead of the broader MSCI World Index (4.1%).
The companies within this universe are in the business of researching and developing solutions that address critical issues affecting the environment, including waste management and recycling, sustainable agriculture and forestry, pollution control and maintaining and managing key resources such energy, water, soil and air. Pictet Asset Management’s strategy, which contains a concentrated portfolio of approximately 50 stocks–mostly mid-caps–has outperformed the MSCI World Index over a three-year horizon (40% versus 32%, respectively) with similar levels of volatility and a lower maximum drawdown.
Outperformance on sustainable fund
Pictet Global Environmental Opportunities is a benchmark agnostic strategy launched in 1 October 2014. MSCI World is a reference index which serves as a proxy for Global Equities. The strategy’s investment universe is more concentrated than global indices as it is limited to the theme, but it contains stocks not included in the index as it is unconstrained in size and regions. Reference index does not influence the portfolio construction process.
“Although these matters are not new, widespread awareness enabled by technology has pushed public sentiment to new levels in the past decade and the doubling of our fund’s AUM year-to-date is best proof of the strong trend,” according to Marc-Olivier Buffle, senior product specialist at Pictet Asset Management, referring not only to greater general awareness but also a greater level of objectivity and specificity due to increasing volumes of data and information. “Now, we can no longer say that we don’t know about these issues.”
The proof is in the pudding when it comes to Pictet Asset Management’s commitment to both financial and environmental deliverables. The asset manager engages an external advisory board to identify and explore macro trends and drivers and to quantitatively and actively measure their real impact in terms of contributions to pollution control or resource efficiency, for instance.
Sustainable investing: Fundamentals beyond financials
Further evidence of the asset manager’s commitment to sustainable investing is the broader consideration of ESG (environmental, social and governance) factors across its entire investment framework.
When developing an investable universe in this space, Pictet Asset Management first screens the market for companies that have low environmental impacts before scoring and systematically integrates these evaluations into its investment process. The firm considers factors such as business franchise and management quality in addition to traditional financial metrics.
The investment process
Click to Enlarge. For illustration only.
It is important to note that Pictet Asset Management is not merely playing lip service to the ESG cause. Quite the opposite, the firm quantitatively assesses companies based on their positive environmental impact across nine key issue areas: chemical pollution, climate change, ocean acidification, aerosols, ozone depletion, eutrophication, biodiversity, land use and freshwater. When comparing the underliers within Pictet’s strategy and the MSCI World Index, the former outperforms the latter across all metrics by a significant margin.
Source: Pictet Asset Management as of 30.06.2017.
The fund house stresses that such applications are not simply aimed at generating a ‘feel-good’ response, nor are they used in the hope that wider acceptance could drive beta returns. Rather, the asset manager is aware that neglecting these issues could result in a direct hit on profitability and equity returns, whether in the form of regulatory fines due to the dumping of illegal waste or shareholder dissatisfaction due to poor governance.
“If you take a look at some of the investment frameworks applied by leading institutional investors, a lot of what they are doing falls under the umbrella of ESG. The advent of major market data providers has reduced companies to just a few figures, forsaking factors that we had previously considered to be part of fundamentals,” Buffle says.
Considering Asia’s outcome-oriented investor culture, wherein results matter more than the ‘story’, the question remains: does this approach to investing work?
“Does considering earnings-per-share growth alone work? Does considering price-to-earnings ratios alone work? You cannot take one factor in isolation to determine your future returns,” Buffle explains. “The application of such factors is intended to provide a much more complete view of your investments so as to manage and potentially mitigate risks of all kinds, beyond just conventional financial metrics.”
The information and data presented in this material are for information purposes only and are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments in any jurisdiction. Investment involves risk. Past performance is not indicative of future results. Before making investment decision, investors should refer the offering documents. Information, opinions and/or estimates expressed in this material reflect a judgment at its original date of publication and are subject to change without notice. They are not prepared for any particular investment objectives, financial situation or requirements of any specific investor and do not constitute a representation that any investment strategy is suitable or appropriate for an investor’s individual circumstances or otherwise constitute a personal recommendation. If in doubt, please seek independent advice.
For Hong Kong investors: This material has not been reviewed by the Securities and Futures Commission or any other regulatory authority. The issuer of this material is Pictet Asset Management (Hong Kong) Limited. For Singapore investors: This material is intended only for institutional and accredited investors and it has not been reviewed by the Monetary Authority of Singapore.
This is a sponsored article from Pictet AM.