A new era for SRI: How a sustainable and responsible investment approach can generate alpha

Transcription

1 This document is solely for the use of professionals and is not for general public distribution. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. A new era for SRI: How a sustainable and responsible investment approach can generate alpha February 2016 Nick Anderson Investment Manager, Global Equities Hamish Chamberlayne Investment Manager, Global Equities

2 Learning outcomes Understand what SRI investing means at Henderson Appreciate the significance of climate change as an investment issue Consider the financial impact of material environmental, social and governance factors Recognise why a sustainable and responsible investment approach has the potential to generate alpha 1

3 Biographies Nick Anderson Investment Manager Nick is the co-manager of the Global Equity sustainable investment funds at Henderson Global Investors. He joined Henderson in April 2011 moving together with the Global Equity Team from Gartmore. Nick began his career at Norwich Union Fund Management in 1986, initially specialising in European equities before going on to manage a number of segregated pension funds. He joined Schroder Investment Management in 1997 as an investment manager before becoming Head of Pan European Research. Subsequently, Nick spent six years with Insight Investment, where he was Head of Equity Research. Nick graduated from Durham University in 1986 with a degree in Economics. He is a former member of the UK Accounting Standards Board and an Associate of the CFA Society of the UK. Hamish Chamberlayne Investment Manager Hamish is the co-manager of the Global Equity sustainable investment funds at Henderson Global Investors. He joined Henderson in April 2011 moving together with the Global Equity Team from Gartmore. Before joining Gartmore in 2007, Hamish worked at PricewaterhouseCoopers where he qualified as a chartered accountant. Hamish graduated from New College, Oxford University, in 2002 with a Master s degree in Chemistry. He is a CFA charterholder. 2

4 Agenda What is SRI? Our approach Long-term thematic investing Assessing management Financial analysis Henderson Global Care Growth 3

5 What is SRI? A variety of investment approaches Henderson Global SRI Sustainability-themed investing Integration of ESG factors Negative/exclusionary screening Corporate engagement and shareholder action Norms-based screening Positive/best-in-class screening 4

6 Henderson Global SRI Key differentiators Long-term thematic approach Ten sustainability themes provide a framework for idea generation Disciplined fundamental analysis Combining financial valuation with environmental, social and governance research Strict ethical criteria Partnering with ethical research provider EIRIS to monitor exclusion criteria Diversified, active portfolio High active share with balanced risk characteristics * ESG: environmental, social and governance A core global equity SRI strategy 5

7 Henderson Global SRI risk adjusted returns Competitor performance (Global equity core) Returns relative to benchmark % Henderson Global SRI Fund 3.2% Median 0.0% Risk relative to benchmark (tracking error) % Henderson Global SRI Fund 3.9% Median 3.4% Risk adjusted relative returns (information ratio) Henderson Global SRI Fund Median 0.0 Source: Mercer MPA, as at 30 September 2015 Benchmark is MSCI World Free USD$ Mercers MPA Universe: Global Equity Core Note: Time period for Analysis is 3 years. Past performance is not a guide to future performance 6

8 Patient capital Low turnover, high conviction portfolios can deliver alpha US mutual funds relative annualised benchmark-adjusted net returns % Henderson Global SRI* Active share: 94.9% Turnover: 23.6% Low turnover High turnover Low turnover High turnover Highest active share Lowest active share Source: Cremers, M. and Ankur Pareek, "Patient Capital Outperfomance: The Investment Skill of High Active Share Managers Who Trade Infrequently," Working Paper. * Factset, Henderson Global Investors, as at 31 December 2015 Note: Past performance is not a guide to future performance 7

9 Long term thematic investing 4 mega trends threats and opportunities Climate change Resource constraints Population growth Ageing population Long-term structural growth trends 8

10 Climate change is the biggest investment issue of our time This is not just an issue for SRI funds. Things will change for all investment strategies Climate/economic risk Infrastructure, health, property, agriculture, supply chains, insurance Carbon/regulatory risk Stranded assets, carbon costs, rising operational costs and capital investment Technological disruption risk Clean energy, battery storage, electric vehicles SRI: Sustainable and Responsible Investment 9

11 Carbon risk stranded assets Already discovered fossil fuel reserves exceed the remaining carbon budget by 3x-5x Total Carbon Budget 1870? 2600 GtCO 2 Amount used GtCO 2 Amount remaining 600 GtCO 2 80% probability of limiting average temperature increase to 2 o C Since pre-industrial times we have used around 75% of our total budget Total proven fossil fuel reserves including state owned assets contain 2860 GtCO 2. The Intergovernmental Panel on Climate Change (IPCC) has given us a carbon budget if we want an 80% probability of limiting temperature increase to 2 o C. Source: IPCC and Carbon Tracker Unburnable Carbon Note: Gt = Gigatonnes 10

12 Disruption and carbon risk already here $ Peabody Energy 0 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec RWE 0 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 GBp Glencore 100 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 $ Tesla 0 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Source: Bloomberg, as at 31 December The above examples are intended for illustrative purposes only and are not indicative of the historical or future performance of the strategy or the chances of success of any particular strategy. Henderson Global Investors, one of its affiliated advisors, or its employees, may have a position mentioned in the securities mentioned in the report. References made to individual securities should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase the security. 11

13 Technological disruption business is ahead of government When battery costs fall to $100/kwh the world changes Tesla Motors 12

14 Long-term thematic approach Identifying companies which are strategically positioned for environmental and social trends Cleaner Energy Efficiency Environmental Services Water Management Sustainable Transport Sustainability themes Health Knowledge and Technology Social Property and Finance Safety Quality of Life Diversified growth opportunities 13

15 Themes in practice Portfolio construction is determined by disciplined bottom up stock selection Every stock must fit into a sustainability theme 14

16 Assessing management What is the role of the modern corporation? A management remuneration vehicle Focus on revenue & EBITDA Rapid growth Hitting quarterly numbers Highly valued paper Numerous acquisitions High share and option issuance Short-term performance related pay Generating sustainable economic & shareholder value Long-term strategic vision Judicious capital allocation Investing in stakeholder success Focus on innovation & organic growth Long-term cash generation and returns Equity ownership Rewarded on economic profit generation EBITDA = earnings before interest, taxes, depreciation and amortisation 15

17 Corporate responsibility evaluation Environmental, social & governance analysis integrated into investment process Environment Resource management, policies, performance and critical issues Workplace & Social Supply chain, safety, industrial relations and community impact ESG opportunities Stakeholders aligned to a shared corporate strategy Incentivised to plan and invest for the long term Enhanced competitive position Business Standards Ethics, governance structure and market practices Corporate Stewardship Shareholder rights, capital deployment and remuneration ESG risks Potential for higher costs and impaired assets Regulatory breaches and reputational damage Short-term profit maximisation at expense of longterm returns Evaluating the management of strategic risks and opportunities 16

18 What do we mean by ESG issues? A hierarchy of multiple risks and opportunities Source: MSCI 17

19 Non-financial risks? All material ESG risks can have a financial impact Our pursuit of innovation and perfection and our responsible approach will help to make us the world s leading automaker by 2018 both economically and ecologically. Dr. Martin Winterkorn, 2014 Volkswagen report & accounts We find that firms with good performance on material sustainability issues significantly outperform firms with poor performance on these issues. Corporate Sustainability: First Evidence on Materiality Harvard Business School, Volkswagen share price 20 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Source: Bloomberg, as at 31 December 2015 Understanding the longer-term potential drivers of value 18

20 Financial analysis Disciplined fundamental research Source: Henderson Global Investors, as at 30 September 2015 Harnessing resources of the Global Equities Team 19

21 Global Equities Team Nick Anderson and Hamish Chamberlayne are the lead portfolio managers on the Global Equities SRI Funds Henderson Global Equities team Nick Anderson Investment Manager 29 years industry experience Hamish Chamberlayne, CFA Investment Manager 8 years industry experience Global Equities team AUM: 1.7bn SRI AUM: 563m Matthew Beesley, CFA Head of Global Equities 18 years industry experience Ian Tabberer, CFA Investment Manager 15 years industry experience An experienced team of investment managers Brian O Neill Investment Manager 46 years industry experience Alistair Sayer Investment Director 20 years industry experience Sanjeev Lakhani, CFA Investment Manager 11 years industry experience Wouter Volckaert, CFA Investment Manager 14 years industry experience Source: Henderson Global Investors, as at 30 September 2015 Edward Howkins Assistant Investment Specialist 3 years industry experience George Crowdy, CFA Investment Analyst 5 years industry experience A team of global generalists 20

22 Henderson Global Care Growth Investment philosophy Sustainability Sustainability runs through our investment process: Themes, Growth, Cash Flows, Governance, Capital Allocation Change Significant change is often misvalued by investors Long-term focus Allowing us to take advantage of opportunities arising from the increasingly short-term oriented market Sustainable cash flow enables positive change 21

23 Henderson Global Care Growth Risk control: diversification and characteristics Approximately holdings Positions typically no larger than 3% and generally 0.5-2% Active money of approximately 95% Balanced geographical exposure in line with the benchmark. Unconstrained by sector. Fully invested, expected cash levels between 1-3% Expected annual portfolio turnover less than 30% Theme Fund % Knowledge & Technology 20.6 Health 16.4 Efficiency 13.8 Sustainable Transport 13.5 Social Property & Finance 12.4 Safety 6.5 Quality of Life 4.8 Environmental Services 3.7 Water Management 3.1 Cleaner Energy 2.8 Source: Henderson Global Investors as at 31 December 2015 Note: Totals may not add up due to rounding or cash levels Dynamic diversified theme exposure 22

24 Henderson Global Care Growth Region and sector breakdown Sector weights relative to benchmark Regional weights relative to benchmark Industrials Information Technology Consumer Discretionary Telecommunication Services Materials Health Care Utilities Energy Financials Consumer Staples Cash Emerging Markets Japan UK Pacific Ex Japan Europe Ex UK North America % % Source: Henderson Global Investors, FactSet, as at 31 December 2015 Note: Benchmark is the MSCI World 23

25 > 50bn 20bn - 50bn 5bn - 20bn 2bn - 5bn 500m - 2bn <500m Cash Identifying growth opportunities Active money of approximately 95% Market cap breakdown (%) Market cap vs MSCI World (%) > 50bn 20bn - 50bn 5bn - 20bn 2bn - 5bn 500m - 2bn 0 <500m Cash Source: Henderson Global Investors, FactSet, as at 31 December

26 Top 10 largest holdings Stock Country Sector Theme Weight (%) Adobe Systems United States Information Technology Knowledge and Technology 2.5 Delphi Automotive United States Consumer Discretionary Sustainable Transport 2.4 MEDNAX United States Health Care Health 2.3 Visa United States Financials Knowledge and Technology 2.3 DS Smith United Kingdom Materials Environmental Services 2.2 Comfortdelgro Singapore Industrials Sustainable Transport 2.2 Acuity Brands United States Industrials Efficiency 2.2 Shimano Japan Consumer Discretionary Sustainable Transport 2.2 Henry Schein United States Health Care Health 2.2 Aon United States Financials Health 2.1 Source: Henderson Global Investors, FactSet, as at 31 December

27 Henderson Global Care Growth Performance Henderson Global Care Growth Fund (UK OEIC) performance (annualised) % Henderson Global Care Growth Fund (net) MSCI World IA Global sector year 2 years 3 years 5 years 7 years 10 years Source: Henderson Global Investors, Morningstar Workstation, as at 31 December 2015 Note: Fund performance for the OEIC is based on the I Inc share class, based on midday pricing, in GBP, and net of fees. Performance over one year is annualised. Benchmark is MSCI World NR. The Global Equities team assumed responsibility for the Henderson Global Care Growth Fund on 31 December Past performance is not a guide to future performance. 26

28 Henderson Global Investors 201 Bishopsgate, London EC2M 3AE Tel: Fax: Important information This document is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general public distribution. Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor s particular circumstances and may change if those circumstances or the law change. If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no ), Henderson Fund Management Limited (reg. no ), Henderson Investment Funds Limited (reg. no ), Henderson Investment Management Limited (reg. no ), AlphaGen Capital Limited (reg. no ), Henderson Equity Partners Limited (reg. no ), Gartmore Investment Limited (reg. no ), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. Ref: 34S G:\Dist\Global\BS\Pres\Retail\Retail Investor Day\Retail Investor Day 2016\Global Care Growth (SRI)\SRI Retail Conference Decemeber.pptx 27