The Morningstar Prospects list shines a light on lesser known, up-and-coming strategies we believe could be worthy of greater investor attention but are not yet covered by the Morningstar manager research team.
We have held numerous discovery meetings with promising strategies over the past six months, and in this piece, our analysts highlight five equity funds with sustainability mandates.
BMO Responsible Global Equity/BMO Sustainable Opportunities Global Equity
By Ronald van Genderen (pictured)
- Fund Manager(s): Jamie Jenkins and Nick Henderson
- Morningstar Sustainability Rating: 5 Globes
- Morningstar Category: Global Large-Cap Growth Equity
Both funds are co-managed by experienced Jamie Jenkins and Nick Henderson, leading a team of 16 members. Both fund managers can leverage on other BMO investment teams and receive support from the BMO’s central responsible investing team. All members are assigned stock coverage. With around 200- plus rated stocks and around 100-120 stocks covered by intensive research notes, the team has the resources for in-depth stock research. Both strategies are high in active share and long-term in nature. Fundamental stock selection is centred around quality, management and valuation. The portfolio is well-diversified with 40-60 stocks and exhibits a growth style although it is not dominated by typical high-growth stocks. The difference between the two funds is based on the applied ESG policy, but the portfolios are quite similar and have a big overlap in names with each other.
JPM Emerging Markets Sustainable Equity
By Lena Tsymbaluk (pictured)
- Fund Manager(s): Amit Mehta and John Citron
- Morningstar Sustainability Rating: 5 Globes
- Morningstar Category: Global Emerging-Markets Equity
The SICAV fund was launched in November 2019 and the UK OEIC was launched in December 2020. The strategy is managed by Amit Mehta and John Citron, who are members of the emerging markets fundamental team led by Austin Forey. Management is well-supported by the 100-member emerging- markets and Asia-Pacific equities teams. The strategy leverages on the fundamental investment approach used since 1994, which we already rate positively across a number of emerging markets strategies. The selection process will involve screening emerging-markets equities to cut out unverifiable industries and businesses. The managers will invest in “sustainable leaders who are best-in-class” in their industry.
Pictet-Quest Europe Sustainable Equities
By Ronald van Genderen
- Fund Manager(s): Laurent Nguyen
- Morningstar Sustainability Rating: 5 Globes
- Morningstar Category: Europe Large-Cap Blend Equity
This strategy is managed by experienced lead portfolio manager Laurent Nguyen, who joined Pictet in 1998. He heads the quantitative equities team of seven members. They are supported by Pictet‘s ESG team. Until 2009, this strategy used a best-in-class ESG approach in stock selection, without financial inputs. After a disappointing performance in 2007-08, the team developed and introduced its current 4P framework. The process is a blend of a quant and judgmental approach. Within the quant process, the team relies heavily on its IT infrastructure and data. Next to sustainability criteria, including a proprietary ESG-scoring model, which set the investable universe, the current approach uses the quant-based 4P framework that looks at profitability, prudence, protection, and price. As its conviction grew in the newly introduced 4P framework, the level of active management significantly increased in 2012 and more recently in two smaller steps in 2018, resulting in the currently more-concentrated portfolio of around 60 positions.
Regnan Global Equity Impact Solutions
By Ronald van Genderen
- Fund Manager: Tim Crockford (pictured)
- Morningstar Sustainability Rating: 3 Globes
- Morningstar Category: Europe Flex-Cap Equity
This fund is managed by Tim Crockford, who was previously at Federated Hermes before moving to Regnan in October 2020. His distinctive approach starts with the UN SDGs and then identifies solutions to these SDGs. Next step is selection by the team of the best solution. In their stock research the team focuses on their estimation of how much value a company can create with such a solution and how much of that value is distributed to shareholders. The approach is very long-term in nature, which is evidenced by the value assessment that takes a 10-year horizon.
The portfolio is highly concentrated with typically slightly more than 30 positions with a clear growth bias and tilt toward mid-caps and small caps. Sector allocations also show large concentration, as almost 60% of assets are invested in the industrials and healthcare sectors. The strategy has only a limited track record at Regnan, but it has achieved strong results at Federated Hermes with outperformance versus the Global Flex-Cap Equity category average and relevant indexes such as the MSCI ACWI category benchmark and MSCI ACWI Mid Growth Index.
