The Luxembourg-domiciled Aberdeen Standard Sicav I – Asian Sustainable Development Equity Fund will invest in a portfolio of 30-60 high-conviction stocks (that is, a concentrated portfolio of fewer individual holdings than usual) focusing on Asian markets, according to a media statement.
It will be available to professional investors in Hong Kong and Singapore, but only registered for retail sale in the UK and Europe.
The managers will look to identify quality companies that present strong growth potential and where there are opportunities to allocate capital to the issues highlighted by the United Nations’ Sustainable Development Goals (UN SDGs).
The UN’s 17 SDGs were introduced in 2016, and are meant to help tackle issues such as poverty, inequality and climate change.
“By investing in companies based or operating in Asia Pacific economies, which are strongly aligned to the UN’s SDGs, this new fund seeks to deliver both attractive return for our clients and a positive societal impact – where it matters most,” said David Smith, ASI’s head of corporate governance, Asia Pacific, in the statement.
The ASI fund will use the firm’s “eight-pillar framework for assessing a company’s level of conformity to the SDGs, comprised of: circular economy, sustainable energy, food and agriculture, water and sanitation, health and social care, financial inclusion, sustainable real estate and infrastructure, and education and employment.
A spokeswoman told FSA that “the fund will include exposures in developed markets such as Australia and Singapore, emerging markets including China and India, and frontier markets such as Vietnam and Bangladesh.”
“Overall, we expect to be invested in about 14 countries in Apac, and sector exposure will be diversified across most major market segments including technology, financials, healthcare and consumer stocks,” she said.
The MSCI AC Asia Pacific ex Japan index, rather than an ESG index, is the fund’s benchmark.
Responsibility for the day-to-day running of the product rests with the firm’s Asia-Pacific responsible investment portfolio construction group, led by David Smith. He will be supported by the Scotland-based firm’s 50-strong Apac equities team, headed by Flavia Cheong, said the spokeswoman.
Cheong also leads the team that manages the $2.6bn Aberdeen Standard Sicav I Asia Pacific Equity Fund, which has generated a three-year cumulative return of 18.79%, slightly better than its benchmark MSCI AC Asia Pacific ex Japan index (18.01%), and is outperforming so far this year, up 6.37% compared with 5.97% by its index, according to FE Fundinfo.
But, Apac ESG indices have achieved stronger returns than the region’s conventional indices over three years and held up well during the Covid-19 outbreak, FE Fundinfo data shows.
In particular, ESG leader strategies have benefited from low or zero exposure to gaming, alcohol, and fossil fuel stocks, and high allocation to “new economy” stocks, which have profited from stay-at-home consumption trends.
Comparative performance of Apac indices
| Index | Year-to-date return | 3-year return | 5-year return | Annualised volatility* |
| MSCI AC Asia Pacific ESG Leaders | 6.52% | 23.04% | 68.45% | 16.67% |
| MSCI AC Asia Pacific | 3.37% | 17.31% | 59.20% | 17.32% |
| Aberdeen Standard Asia Pacific Equity Fund | 6.37% | 18.79% | 45.12% | 18.16% |
| MSCI AC Asia Pacific ex Japan | 5.97% | 18.01% | 69.73% | 18.24% |
Source: FE Fundinfo. Data in US dollars to 26 August 2020. *annualised over three years.
Apac plays ESG catch-up
However, Asian countries only accounted for 2.4% of global inflows into ESG funds, and recorded net outflows of $894m during the second quarter this year, according to a recent Morningstar report. The region bucked the global trend, which saw inflows of $71.1bn, up 72% compared with the first three months of the year.
Morningstar acknowledged that the regional figures probably underestimate the ESG fund flows in Hong Kong and Singapore. The two hubs have only $283m and $6m respectively of locally-domiciled sustainable funds, but it is common for Hong Kong and Singapore investors to buy European Ucits funds – including those with ESG mandates.
Yet, Asia remains an ESG laggard. Several reports show that the main barriers to ESG integration into fund managers’ investment processes are a limited understanding of ESG issues and a lack of comparable, quality data.
A survey of licensed asset managers by Hong Kong’s Securities and Futures Commission (SFC) in December 2019 found that only 35% of 660 firms consistently integrated ESG factors in their investment and risk management processes.
On the other hand, many wealth managers in Asia share a belief that ESG factors will continue to grow in importance, but they insist on a rigorous assessment of the ESG claims made by fund managers.
Traditional asset managers also recognise the growing importance of ESG and sustainable investing.
In a survey of 50 CIOs at investment firms in Singapore released this week, two-thirds of respondents believed the Covid-19 pandemic will increase the adoption of ESG investments, and only 4% thought ESG adoption would slow down.
Equities were by far considered the asset class that would attract the most ESG-related flows, receiving 76% of votes, followed by multi-asset (12%) and alternatives (8%), with fixed income a minority interest (4%), according to the survey conducted by the Investment Management Association of Singapore.
