Investment DA N A SOCIAL ESG E Q U I T Y STRATEGY.

Transcription

1 Investment DANA Advisors DA N A SOCIAL ESG E Q U I T Y STRATEGY

2 THE WISE CHOICE HERITAGE A strong family culture Since our founding in 1980, Dana has remained independent and Employee-owned. Our investment firm is built on trust, integrity, and professional experience. QUALITY Excellence in meeting client expectations Dana strives to provide personalized client service and excellence in everything it does. We are uncompromising in our efforts to deliver superior results to clients. EXPERTISE Focus on what we do best Dana has assembled an investment team with diverse skill sets and specialized knowledge. We are adept at navigating challenging market environments and developing customized solutions. CONSISTENCY Adherence to a uniform process Dana implements a uniform investment process to minimize volatility and improve consistency of returns. We seek repeatable and predictable results to most effectively grow cumulative wealth. Investment DANA Advisors 2

3 DANA INVESTMENT ADVISORS Dana Investment Advisors was built on the belief that adhering to a defined investment process allows our professionals to focus on the fundamentals of consistent outperformance through security selection. Founded in 1980 Employee-owned Domestic equity, taxable and tax-exempt fixed income, and ESG asset manager Manage $7.4 billion as of March 31, 2018 Headquartered in Brookfield, Wisconsin We ve never wavered from our goal of providing above market returns while reducing volatility for our clients. 3

4 DANA INVESTMENT ADVISORS AWARDS AND RECOGNITION Pensions & Investments Best Places to Work Award Dana Investment Advisors has been recognized as the top place to work 2017 Best Places to Work in Money Management by Pensions & Investments. This is the sixth year in a row Dana Investment Advisors has been awarded this industry distinction. We are honored that Pensions & Investments has again recognized us for our strong culture, dedication to our employees, and social impact stated Mark Mirsberger, Firm CEO, adding, Our strong family/employee culture directly impacts our client experience as clients benefit from working with and developing strong relationships with a passionate team that essentially has little to no turnover for decades. Impact Manager of the Year Award Dana s Social ESG Equity Strategy Dana Investment Advisors has been named the SMA Impact Manager of the Year by Envestnet PMC. This was the 11 th annual SMA Awards by Envestnet and the first time an award was given in the Impact space. Dana s Director of Equities and Portfolio Manager, Duane Roberts, notes that contrary to many investors conception, integrating environmental, social and governance (ESG) criteria into the portfolio management process may enhance financial returns. We have delivered consistent, superior investment performance over the Social ESG Equity Strategy s 15 year history. SMA U.S. Large Cap Equity Manager of the Year Dana Investment Advisors has been named the SMA U.S. Large Cap Equity Manager of the Year by Envestnet PMC. This was the 10th annual SMA Awards by Envestnet PMC, formerly Prima Capital, and recognizes managers that consistently outperform their peers over time, following a clearly defined sustainable and repeatable alpha strategy. Firm CEO Mark Mirsberger - This recognition is the result of hard work and dedication of our talented investment team and highlights that staying true to a superior investment process with disciplined risk controls can lead to consistent out-performance. 4

5 DANA ESG PROCESS ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) OVERVIEW Universe: The union of the Russell 3000 Index and S&P 1500 Index (approximately 3000 stocks) STRUCTURAL RISK CONTROLS SECTOR NEUTRAL, EQUAL WEIGHTED, FULLY INVESTED TO MINIMIZE VOLATILITY AND FOCUS ON STOCK SELECTION AS PRIMARY VALUE ADD ESG F I N A N C I A L Quantitative Models Fundamental Analysis Derive relative ESG rank from discrete E, S, and G scores Utilize thousands of underlying data points from multiple ESG vendors Compute relative rank to target top 30% of companies ( stocks) Reconcile contradictory scores Evaluate sector specific ESG drivers Assess materiality on future earnings I N T E G R A T I O N Compute sector relative rank based on valuation, growth, and quality Utilize earnings, cash flow and growth metrics, and balance sheet variables Focus on higher-ranking securities by sector ( stocks) DuPont analysis Earnings estimates and revisions Uses of cash flow Quantitative Models Fundamental Analysis Review potential systematic litigation, regulatory, and environmental risks Persistence of competitive advantages Organic versus inorganic growth STOCKS WITH STRONG ESG AND FINANCIAL CHARACTERISTICS BY SECTOR ADVOCACY PROXY VOTING, LETTERS AND RESOLUTIONS, CORPORATE ENGAGEMENT 5

6 DANA SOCIAL ESG EQUITY STRATEGY ESG PROCESS Dana s holistic process is Comprehensive, Balanced, Thoughtful Comprehensive: Dana s proprietary quantitative Environmental, Social and Governance (ESG) model utilizes thousands of underlying data points from multiple vendors to rank approximately 3,000 U.S. stocks. Balanced: An ESG rank is calculated for each stock by equally weighting the factors using a geometric mean that helps to identify companies with favorable performance across all E, S, and G considerations. Thoughtful: Dana integrates ESG criteria into Dana s stock selection process, resulting in positive, best-in-class representation. Advocacy efforts are aligned and consistent with process. Environmental Social Governance Exclusions Advocacy Climate Change Impacts and Metrics Fines and Regulatory Actions Environmental Disclosures and Policies Board Accountability Workforce Diversity Human Rights Policies Product and Workplace Safety Labor Rights and Policies Animal Testing Board Composition CEO Compensation Audit and Accounting Board Independence Corporate Transparency Adult Entertainment Alcohol Tobacco Gambling Weapons Proxy Guidelines Sign-on Letters and Resolutions Corporate Engagement Partnerships with Mission-aligned Nonprofits 6

7 DANA EQUITY STRATEGIES INVESTMENT PHILOSOPHY AND PROCESS Investment Philosophy We strive to generate excess risk-adjusted returns through a consistent and disciplined investment process. Structural Risk Controls Idea Generation Fundamental Analysis Sell Discipline 7

8 DANA EQUITY STRATEGIES INVESTMENT PHILOSOPHY AND PROCESS Structural Risk Controls Idea Generation Fundamental Analysis Sell Discipline Structural Risk Controls Relative Valuation Sector Neutral Equal Weighting Position Size Limits Fully Invested % 51.7% 2.0% -6.9% 46.6% 28.8% 29.1% 36.5% 32.4% -17.7% 59.9% 27.6% 19.9% 28.8% 43.1% 29.0% 10.1% 27.3% 38.8% 24.1% 23.0% 20.0% 17.4% 16.0% 2.3% -11.6% -12.8% -16.6% 35.6% 23.4% 14.5% 13.2% 4.5% -17.7% -20.7% -40.0% -41.0% 1.0% -13.0% Dana s sector neutral investment approach recognizes it is very difficult to predict future sector performance. Dana s Risk Approach: Structural Risk Controls are the groundwork for our repeatable and consistent investment process. -7.0% -8.3% -10.5% -12.3% -13.7% -26.0% -32.5% -7.7% -13.3% -16.4% -20.0% -24.5% -27.6% -33.0% -35.9% -37.6% 36.1% 34.8% 29.8% 27.9% 22.4% 21.1% 13.3% 9.2% 3.3% 19.6% 16.0% 16.0% 12.1% 10.8% 8.2% 6.0% 2.1% 0.2% 12.8% 4.9% 3.7% 2.2% 1.3% 0.4% 0.4% -7.4% -9.1% S&P 500 Sector Performance 23.7% 21.5% 19.8% 19.5% 18.9% 14.3% 13.8% 7.9% 7.8% 20.0% 15.8% 15.5% 11.6% 9.8% 8.5% 5.4% -14.3% -20.8% -24.5% -31.6% -33.6% -34.7% -35.9% -41.5% -43.7% -47.1% -57.0% 45.2% 38.8% 17.3% 17.1% 14.8% 11.3% 11.2% 6.8% 2.6% 26.9% 22.9% 19.7% 19.5% 14.2% 12.2% 10.5% 5.5% 2.8% 13.9% 12.7% 6.3% 6.1% 4.7% 2.4% -0.6% -9.7% -17.1% 23.9% 18.3% 17.7% 15.3% 15.0% 14.7% 10.8% 4.4% 1.7% 41.5% 40.7% 35.6% 28.4% 26.1% 25.6% 25.1% 13.2% 11.5% 25.3% 20.1% 16.0% 15.2% 9.8% 9.7% 6.9% 3.0% -7.8% 7.0% 6.6% 5.9% 3.4% -1.5% -2.7% -4.9% -8.4% -21.1% 23.5% 21.7% s 18.4% 16.4% 15.9% 13.9% 6.1% 5.4% Real Estate 3.7% -2.5% 23.8% 23.0% 22.2% 22.0% s 21.3% 13.5% 11.8% Real Estate 10.8% -1.1% -1.3% 2018? 8 Source: Dana Investment Advisors; Bloomberg and FactSet Data Systems

9 DANA EQUITY STRATEGIES INVESTMENT PHILOSOPHY AND PROCESS Structural Risk Controls Valuations Idea Generation Fundamental Analysis Idea Generation (Quantitative Analysis) Growth Sell Discipline Estimate Revisions The idea generation phase RELATIVE VALUATION MODEL VALUE RELATIVE TO GROWTH MODEL ESTIMATE REVISIONS MODEL leverages our propriety models to generate segmented data that efficiently focuses our research on improving or deteriorating trends within sectors, industries DANA RANK or individul companies. We feel this dynamic component is a key advantage and provides a platform that focuses our stock selection. 9

10 DANA EQUITY STRATEGIES INVESTMENT PHILOSOPHY AND PROCESS Structural Risk Controls Business Model & Management Idea Generation Fundamental Analysis Fundamental Analysis Profitability Cash Flow Sell Discipline Earnings Decomposition Fundamental analysis is the basis for all of Dana s investment decisions Business Model Profitability Cash Flow Earnings Decomposition Quality of Management Quality of Environmental, Social, and Governance Factors Competitive advantages ROE / ROA Margins Impact of leverage Earnings history Operating Free Capital requirements Uses of cash Estimates and execution Surprise history components and revision trends Earnings quality 10

11 DANA EQUITY STRATEGIES INVESTMENT PHILOSOPHY AND PROCESS Structural Risk Controls Fundamental Characteristics Idea Generation Fundamental Analysis Sell Discipline Relative Strength Model Ranking Sell Discipline Rebalance Fundamental analysis drives the Dana sell discipline Fundamental Characteristics Relative Strength Model Ranking Rebalance Company execution More attractive risk reward opportunity Sector Performance Industry Performance Relative valuation model Value-to-growth model Position weight Sector weight Industry dynamics Estimate revisions model 11

12 DANA ESG PROCESS PROFILE AND OVERVIEW Trucost Footprint Analysis Holdings as of September 30, 2017 Carbon Footprint (tco2e per $mil) 142 Dana Carbon Sensitive ESG Equity Dana Social ESG Equity TOTAL CARBON FOOTPRINT (tco2e / $mil Revenue) Dana Catholic ESG Equity S&P 500 Index Carbon footprint analysis quantifies greenhouse gas emissions (GHG) embedded within the portfolio presenting these as tonnes (metric ton) of carbon dioxide equivalents (tco2e). Comparing the total GHG emissions of each holding relative to annual revenue, gives a measure of carbon intensity that enables comparison between companies, irrespective of size or geography. Each holding s contribution to the carbon footprint of the portfolio is calculated on an equity ownership basis. The carbon footprint of the fund is the sum of these contributions, normalized by revenue owned. 273 Carbon Footprint (tco2e per $mil) Trucost helps companies, governments, and the investment community to better understand the possible environmental impact of their investment activities. Utilizing environmental carbon footprint analysis, Trucost aims to quantify the positive environmental impact of choosing to invest in a socially responsible way. For more information on the Trucost methodology used for calculating environmental carbon footprints, please visit Source: Trucost; Trucost is part of the S&P Global family, operated by S&P Dow Jones Indices. Trucost and Dana Investment Advisors are independent entities. Trucost completed the Carbon analysis in October 2017 based on holdings for the Dana Strategy and S&P 500 Index as of September

13 DANA ESG PROCESS PROXY VOTING GUIDELINES Corporate Governance For an independent chairman of the board Against directors serving on more than four boards, more than three for active CEOs Against CEO directors serving on the compensation committee Against all director nominees if no women are on the board or slate Against all director nominees if minority of directors would be independent Against ratification of auditors if non-audit fees exceed 25% of total fees paid Against ratification of auditors who have served more than ten years Executive Compensation For proposals to link pay to performance For executive retention of significant stock For disclosure of disparity between executive compensation and employees median wage Against say-on-pay proposals when executive pay does not match company performance Against excessive pay packages (less than $10 million is typically a yes vote; more than $20 million is, in most cases, a no vote; discretion in the middle) Against re-pricing or replacement of stock options (with rare exceptions) Against stock option plans that do not apply to all vested/ tenured employees Against stock option plans that could result in excessive dilution to existing shareholders Shareholder Rights For proposals to allow shareholders to act by written consent For proposals to allow qualified shareholders to nominate director candidates (proxy access) For proposals to adopt a simple majority vote standard (for vs. against, abstentions not counted) Environmental For reports on climate change risks, water use risks, GHG emissions reduction targets, renewable energy targets, environmental impact of fracking and other practices, avoidance of conflict minerals, sustainability, supply chain risks, political spending, lobbying that can be produced at a reasonable cost For proposals to adopt quantitative renewable energy goals For policies that limit global warming to 2 C For proposals to adopt recycling strategy Social For proposals to implement human rights standards and codes of conduct For proposals to improve access to health care For proposals to implement humane treatment of animals For proposals to end predatory lending practices For proposals to increase diversity in the workforce For reports on gender pay 13

14 DANA ESG PROCESS ENGAGEMENT POLICY Dana Investment Advisors often engages with portfolio companies to encourage corporate responsibility and accountability. Shareholder proposals When companies are unresponsive to other means of engagement, Dana files shareholder resolutions concerning environmental, social, and governance issues. Dialogue As part of investor coalitions or on our own, Dana initiates dialogues with portfolio companies to discuss relevant ESG issues. Dana also writes letters to companies to encourage greater transparency and risk management. Some of the issues about which we have engaged companies include water risk, supply-chain labor, supply chain labor practices, drug pricing, separation of CEO and Chair, disclosure of political lobbying, and access to nutrition. 14

15 DANA ESG PROCESS ADVOCACY HIGHLIGHTS Q Offshore Drilling Signed on to an investor letter to Ryan Zinke, Secretary of the Department of the Interior, arguing against the Administration s proposed expansion of offshore drilling in coastal waters of the United States. (March 2018, coordinated by US SIF) Arctic Refuge Signed on to an investor letter urging oil and gas companies, and the banks that fund them, not to initiate any oil and gas development in the Arctic Refuge. Drilling has been blocked in the Arctic National Wildlife Refuge for decades, but this was overturned by the recent tax bill, which calls for the federal government to hold at least two oil and gas lease sales in the next decade. (April 2018, coordinated by the Sierra Club Foundation) Gun Violence Signed on to an investor statement asking companies to take a stand on gun violence by adopting sensible policies to protect their employees, consumers, and communities, and take steps to address the dangerous culture of gun violence in our country. (March 2018, coordinated by ICCR) Palm Oil Supported the Roundtable on Sustainable Palm Oil (RSPO) by signing investor letter that expresses the need for a more transparent and responsive complaints mechanism to properly uphold the RSPO s standards, particularly with respect to labor rights. (March 2018, coordinated by Green Century) Indigenous Rights Asked companies to take broad, systemic action to protect human rights defenders, and immediate action to ensure the protection and physical safety of indigenous rights defenders in the Philippines via investor letter. (March 2018, coordinated by Investor Alliance for Human Rights) Food & Beverage Labeling Signed on to a letter urging the Trump administration and Congress to protect public health by opposing efforts that would limit food and beverage front-of-pack labeling in NAFTA. (April 2018, coordinated by Center for Science in the Public Interest) Chevron Joined other investors in inviting Chevron s new CEO to engage in a dialogue on risk management and board oversight, as they relate to the company s long-term challenges particularly its devastating levels of pollution that affect impoverished communities in Ecuador. (Investor letter, April 2018, coordinated by Zevin Asset Management) 15

16 Investment DANA Advisors Physical Address: Swenson Drive Suite 400 Waukesha, Wisconsin Mailing Address: P.O. Box 1067 Brookfield, Wisconsin (262) (800)