Smart beta: The potential for ESG as an investment factor

Nearly half of institutional investors had some form of ‘smart beta’ allocation last year and, separately, research also showed that ESG growth among the world’s largest asset managers was soaring. But could the two – smart beta and environmental, social and governance investing – be combined as a type of investment factor?

In our recent feature, Bruno Taillardat, head of smart beta and factor investing at Amundi, says this is already happening.

“There is a very strong appetite for ESG combined to smart beta in funds,” he says. “Smart beta funds rely on well-structured and disciplined investment processes.”

We also hear that some investment factors react better than others to having an ESG filter applied to them, with ‘quality’ being well matched with ESG.

The quality factor tends to favour companies with large profits relative to their asset base, says Eugene Barbaneagra, portfolio manager for the traditional strategies group at SEI, who adds that “having a high profit base tends to allow a company to afford to mitigate a lot of ethical issues”.

Style Analytics found that ESG factors can be added to the momentum investment factor with ease – and doing this has also been shown to produce higher returns.

In our report (see link below), we hear that certain investment factors could be boosted if ESG criteria were added to them – but that limiting stock selection by mixing ESG and smart beta could heighten some risks.

©2020 funds europe

HAVE YOU READ?

THOUGHT LEADERSHIP

Innovative US companies are providing some of the solutions to the climate crisis and transition to a more sustainable economy. We see potential opportunities in areas including renewable energy and…
FIND OUT MORE
This white paper outlines key challenges impeding the growth of private markets and explores how technological innovation can provide solutions to unlock access to private market funds for a growing…
DOWNLOAD NOW

IRELAND SPOTLIGHT

Visit our dedicated Ireland channel for all the latest news and analysis on the country's investment industry.
READ MORE

PRIVATE MARKETS FUND ADMIN REPORT

Private_Markets_Fund_Admin_Report

LATEST PODCAST