What were the best-read stories on Robeco’s main website this year? They say that ‘great minds think alike’, and if that involves a subject close to Robeco’s heart – sustainable investing – then we find it hard to disagree.
SI superstar Amy Domini’s interview for the ‘Great Minds’ section of Robeco Quarterly was one of the highlights of an action-packed 2019 that also saw the launch of podcasts for those who prefer listening to reading.
Our repertoire of quant stories remained as popular as ever, while trends investing themes are rapidly rising up the agenda, and keeping an eye on what’s happening in macroeconomics remains important to readers. So, here’s our top 12 stories for the year to date in 2019.
Our piece de resistance as far as sustainable investing went in 2019 was the Sustainability Inside book. We embrace SI wholly; environmental, social and governance (ESG) factors are integrated into the investment process for most Robeco funds. But why do we like it so much? For the first time, the book detailed everything that Robeco does in this field, from ESG integration and active ownership, to our global leadership in it, underpinned by a strong commitment to research.
But we’re not the only pioneers of SI; one such person who can claim to have been there at the very beginning is American investment guru Amy Domini. She’s been involved with it since the apartheid era of the 1980s, and assisted with the launch of Robeco’s first sustainable equities fund in 1999. In our exclusive ‘Great Minds’ interview, ‘Let’s use finance to make the world a better place’, she outlined how far she thinks SI has come, and what it still need to do to become more mainstream.
One direction that SI is taking is in following the UN’s Sustainable Development Goals (SDGs). Robeco and RobecoSAM developed a proprietary scoring system to calculate the contribution that companies can make to any one of the 17 goals. We then became one of the first asset managers to develop a means of investing in them via bespoke credits and equities funds. Our animated video, How to invest in the SDGs, explained how this can be done.
Meanwhile, perhaps the greatest issue facing SI (and the world in general) is combatting global warming. In a special edition of her column to mark a new climate accord signed by the Dutch financial industry including Robeco, Head of Sustainability Integration Masja Zandbergen explained how investors are ‘Addressing the climate emergency’. She argued that the language has changed to now use the word ‘emergency’, but progress is slowly being made.
The issue of changing times for the asset management industry was the subject of a podcast by Robeco’s Chief Investment Officer Peter Ferket. We began doing podcasts in 2019 as a means of addressing investors with more limited time, typically listening in during their commutes. In the May edition entitled ‘Asset management is all about intellectual property’, Ferket frankly discussed the trends facing the business, including the difficult issue of clients demanding lower fees.
And there can be fewer fields demanding a higher intellect than quantitative investing, which uses factors to find anomalies in markets. In the February podcast, Head of Quant Research David Blitz argued that ‘Factor investing is by no means a black box’, since the low-volatility, value or momentum styles all have their owns pros and cons. It depends what the investors is looking to achieve, particularly regarding risk and return.
The many facets of this were discussed by Blitz further in ‘The characteristics of factor investing’, a research paper in which he explained that to make the most of the different factors, understanding how each of them works was key. Each factor has different performance characteristics, which means using multi-factor models where their relative attributes can be blended sometimes makes for better-performing portfolios.
Blitz goes further still in explaining how factors work by zeroing in on the one that is perhaps the most mysterious – the low-volatility effect. Research has shown that stocks with lower volatility perform better than higher-risk stocks, when logically the reverse would be true. However, the explanation that investor appetite for higher-profile stocks is responsible is not true, Blitz explained in his analysis ‘Media spotlight does not drive the Volatility effect in equities’. Stirring stuff!
But are these factors here to stay, or just another market fad? In a ground-breaking new academic research paper, Robeco quant experts Guido Baltussen, Laurens Swinkels and Pim van Vliet argued that ‘Factors are a permanent feature of financial markets’. Their research looks at the evidence supporting the existence of various factor premiums across multiple asset classes using new and previously unused historical financial data.
Something that by definition is here to stay is a trend. Consumer preferences come and go, but some do stand the test of time, and investing in the right ones is the real skill behind trends investing. In his synopsis, ‘The key consumer trends of 2019 – health and wellness’, portfolio manager Jack Neele explained why millennials and the new Generation Z care about having a healthy lifestyle, and are willing to pay a premium for it. That provides opportunities for investors.
Another hot trend for 2019 has been Chinese A-shares, which became more accessible to western investors, particularly after MSCI took an additional step to include mainland China stocks in its indices. This has led to ‘Five reasons to allocate to Chinese A-shares’ according to analysis by Jie Lu, Robeco’s Head of Research for China. A-shares are actually the world’s second-largest equity market after the US, though some risks remain, particularly regarding what is sustainable.
Finally, no investor’s reading list would be complete without being thoroughly briefed on what the US Federal Reserve may be planning this year. In a special story combining our usual monthly outlook with a Credit Quarterly, we warned of the likely short-term effects of ‘The Fed’s sugar rush rally’. Jamie Stuttard, co-Head of Robeco’s Global Macro team, advised investors that it would be easier to be long on 2-year Treasuries than in corporate bonds.
More stories are available on www.robeco.com. We wish you happy reading for the remainder of 2019!