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AXA IM has been integrating sustainability into its investment process since the 1990s, and believes that it’s key to generating above-benchmark returns.
Speaking to ifa, AXA IM’s chief investment officer at Rosenberg Equities Gideon Smith said that he aims to do what any active manager aims to do – deliver better returns than the market – but in a way that helps both him and his clients “sleep soundly at night”.
“There are two things that help me sleep better: firstly, knowing that the portfolio I’m investing in is made up of sound, decent, responsible companies – companies that might benefit from some of the broad themes that are shaping society, but also companies that are going to go on and deliver benefits to society,” Mr Smith said.
“The other thing that helps me sleep at night is not too much excitement. We like to buy boring stocks, stocks that generate a stable stream of earnings – not too much risk, not too many surprises.”
That desire to “avoid excitement” and the need for a fundamental anchor means Mr Smith emphasises three factors in the stock picking process – low volatility, high quality, and attractive ESG credentials – saying “If we manage to achieve all three of these things, I get to sleep well at night.”
AXA IM has been integrating responsible principles into its investment process since the 1990s, going from basic exclusion and divestment to a more “active, activist” approach focused on company engagement.
“These principles – ESG, responsible investing – are our perennial ones. They’re rooted in our investment philosophy. We’ve focused on these concepts for so long because we think they’re essentially economic in nature, so of course you should consider them in your investment decision making,” Mr Smith said.
“The governance of a company, its impact on environments and wider society, these issues have an impact on the economics of the business. Ultimately we think it impacts the earnings a company can generate, and that’s why it’s core to our investment approach.”
However, Mr Smith warned that the rise of ESG had also led to a proliferation of products that aren’t necessarily true to label and fund managers who are happy to talk the talk but not walk the walk. AXA IM itself integrates metrics such as diversity – which it believes can deliver a “profitability moat” – into its models, putting it at the heart of the investment process.
“When we talk about responsible investing, we don’t talk about it as something distinct or separate. For us, responsible investing is simply investing,” Mr Smith said.
Risk factors with this strategy:
Company specific risk: There may be instances where a company will fall in price (or rise in price) because of company specific factors (for example, where a company’s major product is subject to a product recall).
Highly volatile markets: The prices of financial instruments in which the strategy may be invested can be highly volatile.
Market risk: Changes in legal and economic policy, political events, technology failure, economic cycles, investor sentiment and social climate can all directly or indirectly create an environment that may influence (negatively or positively) the value of your investment in the strategy. In addition, a downward move in the general level of the financial markets can have a negative influence on the strategy.
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