Over the past decade, both cost awareness and scrutiny into active manager performance have increased. As a result, a shift into passive solutions has taken place, but these solutions also present drawbacks. They tend to lag their benchmark once costs are taken into account, and their transparency comes at a price as market participants actively arbitrage changes. Finally, these strategies often ignore sustainability considerations.
That’s where the ‘middle ground’ between passive and traditional active products comes in: enhanced indexing. It aims to enhance the risk/return and sustainability profile of an index while maintaining the tracking error at a low level.
Robeco’s quantitative stock-ranking models systematically identify and exploit the market inefficiencies that arise as a result of predictable patterns in investor behavior. We were pioneers in the field of quantitative stock selection, which resulted in the first models being developed in the early 1990s. Following the success of the models in practice, in 2004 Robeco launched the first enhanced indexing strategy, a quantitative equity strategy with a low tracking error and ESG integration that offers an alternative to passive investing.
The investment strategy allows us to act on both positive and negative views on companies by overweighting and underweighting them against the benchmark. These deviations from the index weights are relatively small. We determine the relative attractiveness of stocks based on value, quality, momentum and analyst revisions.
All decision making at portfolio level is the result of the signals from the quantitative stock-ranking model and the settings of our portfolio construction algorithm. Portfolios are rebalanced on a monthly basis after new rankings have been generated by the model. Portfolio managers and researchers monitor the entire investment process closely, resulting in full control and human overview of the portfolio.
Robeco has been running a range of Enhanced Indexing Equity strategies for over 15 years. We believe that over time our approach has demonstrated its ability to deliver the targeted consistent outperformance after costs, with a low tracking error. Our approach has proven to be efficient in the global developed and emerging market investment universes alike.
The quant group consists of more than 50 quantitative researchers and portfolio managers, making it one of the largest quantitative teams in the world. We combine this breadth of quant disciplines with over 25 years’ experience of translating our quant research into innovative solutions.
The strategy is managed by the experienced portfolio managers of the Core Quant Equities capability within an organization that is fully committed to quantitative investing. The portfolio managers collaborate strongly with and benefit from the expertise of our quantitative researchers in managing the strategy.
These researchers are responsible for the development and enhancement of quantitative models and applications, which form the heart of our quantitative equity product line. The experienced research team has strong academic links.
This strategy promotes, among other characteristics, environmental and/or social characteristics, which can include exclusionary screening, ESG integration, ESG risk monitoring and active ownership. It is classified as Article 8 under the EU Sustainable Finance Disclosure Regulation.
We incorporate sustainability in the investment and decision-making process in multiple ways:
The strategy adheres to the general Robeco exclusion policy.
We integrate proprietary Smart ESG scores in our stock ranking model. We take ESG into account as a variable in the quality factor.
We ensure that the ESG score is better than that of the benchmark.
We integrate the carbon footprint in the portfolio construction process by ensuring that this footprint is lower than that of the benchmark.
We apply a direct link between the enhanced engagement program and the portfolio.
We have a version of Enhanced Indexing available in our product range that offers improved sustainability compared to our flagship Enhanced Indexing strategies. Core Quant Sustainable has a more extended values-based exclusion list, and also exclude companies with low SDG scores from the investment universe. It also offers a significantly better ESG profile than the index and a 30% lower carbon footprint. This version of Enhanced Indexing is part of our Sustainability Focused products.
Robeco can also offer versions of Enhanced Indexing that focus on sustainability while neutralizing factors. These Paris-aligned SDG and Climate strategies target a 50% carbon reduction and do not invest in stocks which contribute negatively to the UN Sustainable Development Goals.
A central investment of a long-term portfolio
This has been a core expertise for us for decades
Team has long-term experience and low turnover
Taking a rules-based approach to investment management