IFAM: Looking ahead, with so many opportunities in the sustainable investment space, where do you see some of the strongest investment opportunities appearing at the moment?
MM: The industry observations around sustainability and sustainable investing have been very important in the past few years. It’s really gone from a niche area of financial markets and investing to a much more broad-based approach. We’ve seen it growing not only in terms of the assets under management, but also in terms of the opportunities that are present in the market.
If we think, for example, about the sustainable debt markets that have been growing very significantly in the past few years, providing investors with new opportunities to access financing towards green projects or a special project or transition of certain companies. We have seen quite a significant transformation.
It’s really important and also links back to COP26. We have these objectives and targets which are obviously not easy to achieve because our economies and societies are very interconnected. It’s by no means a simple task to achieve a reduction in carbon emissions when these carbon emissions are spread across the entire globe. But as we’ve seen in COP26, there has been an increased focus on the different elements of our economies and societies as I’ve mentioned some of these such as coal, methane, forests and reforestation to overcome deforestation for example. As countries start to discuss more actively the ways to achieve these specific targets, then I think this really accelerates the process of putting regulation into practice. It could therefore mean that these changes might be brought about in a way that possibly could be faster than some market players today anticipate.
This is also driven by the way in which the latest scientific reading evidence shows us that we are already seeing this level of temperature increase. To me, one of the key surprises could be the speed to which this transformation towards sustainability and towards a low carbon economy might occur.
This means two things.
Firstly, that companies which create and provide solutions and enable this transition are very well positioned to be able to benefit from this change.
On the one hand, all companies across different industries will be affected, It is therefore important for us to identify those companies that have already done their homework when it comes to sustainability. They want to be ready and have looked at what their issues are in terms of carbon emissions. They will have already set up a plan to reduce those over time and they will have already embedded this way of thinking and these trajectories into their future strategies. This creates a different type of opportunity.
On the other hand there are those companies that are really at the forefront of this change. These are companies that, for example, continue to innovate when it comes to their renewable energy sources. If we think about solar panels for example, we’ve seen an incredible level of innovation in the past 10 years. However, we know that many companies are still working on increasing this innovation and making solar panels even more efficient.
We’ve also seen companies continue to increase efficiency around onshore and offshore wind farms. There are still some gains to come from an innovation perspective, for those companies that dedicate and invest in R&D in those areas.
On the other hand, looking across different industries, across different countries, it’s very important to be able to identify those companies that already have a plan to face these changes that we’re heading towards because that will put them in a much better position relative to their competitors.
IFAM: How do you and your team actually go about constructing sustainable multi-asset portfolios given all those opportunities that are out there? How do the asset allocation and stock selection processes work?
MM: Here at M&G, we have been delivering multi-asset investments for our clients for many decades.
We have built a robust approach that combines strategic and tactical asset allocation. This means that we will look at what are the medium to long term opportunities and then we position our portfolios accordingly. Of course, we also consider what are the risk return profiles of our investors so we run different types of portfolios according to demand and expectation, for example, from a volatility standpoint.
In addition to this, we also aim to take advantage of shorter term market moves – or tactical asset allocation – which we identify through assessments of investment psychology. We look at some of the most important price moves in the market, assessing them against what the market narrative is and what investors believe and psychology is at that point in time. We have seen over and over again that this provides us with many interesting and valuable opportunities.
From a sustainability standpoint, our sustainable multi asset strategies have two types of holdings: (1) Positive Impact holdings and (2) Positive ESG Tilt holdings. Our Positive Impact holdings are investments actively addressing the biggest societal and environmental challenges of our times. We have used the UN Sustainable Goals to help design a framework targeting 6 key areas of positive impact: climate action, environmental solutions, circular economy, better health, better work & education, and social inclusion. The “Positive ESG Tilt” holdings focus on investments with better ESG quality based on MSCI ESG scores and integrating M&G ESG scores when available. Needless to say, these funds also have various hard sector exclusions such as tobacco, gambling and controversial weapons.
Finally, we think it is very important to report transparently on the Positive Impact that our investments have had, which why we publish an annual ESG & Impact report highlighting the key sustainability and impact KPIs for each of our sustainable portfolios !
While we support the UN SDGs, we are not associated with the UN and our funds are not endorsed by them.
The value of investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested.
Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast
For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This Financial Promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776
About Maria Municchi
Maria Municchi is fund manager on several of M&G’s Multi Asset Sustainable Investment strategies. Maria has been part of the Multi Asset fund management team since January 2017, having initially joined M&G in 2009 as an investment specialist to the Multi Asset and Convertibles teams. Before M&G, Maria worked at Barings and UBS Asset Management. She has an MSc in international management and finance, is a CFA charterholder, and has successfully completed the University of Cambridge Institute of Sustainability Leadership programme in Business Sustainability Management.
