Quantitative Investments
Disciplined, systematic portfolio construction processes and rigorous risk analysis underpin our pursuit of superior long-term returns. Our unique skills set and proprietary investment models enable us to analyse large volumes of data. Within our active equity offerings, this gives us insight into the factors driving market returns, helps remove behavioural biases and produces returns generally uncorrelated to other active offerings. Our systematic approach is also successfully applied to our indexation solutions to reduce tracking errors and benchmark return differentials.Solutions that deliver returns in line with the benchmark and at a much lower cost than traditional active portfolios
Indexation strategies that seek to add value over market capitalisation indices
Actively managed quantitative strategies that exploit market inefficiencies to generate alpha
Solutions targeting defined risk and returns outcomes, regardless of market conditions
Solutions that adhere to Islamic investment principles
Integrating ESG Factors
We believe environmental, social and governance (ESG) metrics are both a critical source of risk mitigation and an additional source of superior returns. We actively integrate ESG metrics into our definition of quality, as we firmly believe them to be a proxy measure for management quality. It also enables us to identify idiosyncratic risks and characteristics not adequately captured in traditional financial data. Companies with superior ESG metrics are less sensitive to market shifts and are better equipped to manage business specific risk.
In simple terms, companies with higher ESG ratings typically have good management systems and teams, and thus suffer less “blow outs”. In contrast, companies that have poor ESG metrics can have higher costs of funding, higher bankruptcy risk, higher future earnings risk, may be prone to business model disruption (due to the transition to a green economy) and may also have a higher risk of controversies – all of which could negatively impact company valuations. The long run transition to a low carbon, socially inclusive and resource efficient economic growth path (green growth) is one of the most significant global economic shifts over the past two decades. At a fundamental level, companies that respond to this “disruption” will reap the benefits of stronger growth prospects, enhanced operating efficiencies, stronger social licence to operate, better staff retention, lower cost of capital and, ultimately, a stronger and more sustainable competitive advantage.
As such, we believe that integrating ESG factors into our investment processes generally enhances both the risk and return profile of our portfolios and aids investors in reaching both the social and financial objectives over the long term. While our solutions use different approaches to generating outperformance, ESG factors are embedded into the portfolios though rigorous screening processes, both qualitative and quantitative, as well as identifying companies with good ESG profiles. As active owners, we also aim to proactively drive positive change and long-term sustainable outcomes through proxy voting and company engagements across all our portfolios.
Within specific portfolios, our SA ESG Equity solution leverages our proprietary ESG Profile Score and targets a 20% improvement in the portfolio’s ESG score and a 40% reduction in its carbon intensity relative to the FTSE/JSE Capped Shareholder Weighted All Share Index (Capped SWIX). Similarly, our Shari’ah portfolios incorporate multiple ESG factors into their share screening processes - excluding listed companies involved in, among others, the selling or offering of tobacco, alcohol, certain foods, gambling and weapons. The global equity component of these portfolios further draws from a range of MSCI ESG ratings and, as such, is strongly biased towards companies with superior ESG profiles.
In addition, we were the first South African manager to launch a number of ESG index funds. The ESG screening for our global ESG index strategies is done by the MSCI. These strategies also benefit from listed equity stewardship, which is conducted by Russell Investment Company (RIC), a seasoned sub-advisor to Old Mutual Investment Group. RIC vote all their proxies in accordance with their proxy voting guidelines, which are aligned to our listed equity stewardship guidelines. In respect of our indexation funds with no specific ESG overlay, these portfolios still have the benefit of listed equity stewardship, which includes proxy voting at company meetings and engagement with company management. Being invested in a tracker fund does not mean the absence of active ownership.
Our case studies show that tilting a portfolio to a higher ESG score, in aggregate, relative to the benchmark creates a higher quality portfolio.