Looking at the world equity indices alone, sustainable and impact investments currently outperform the broader world market. For example, the MSCI ACWI ESG Leaders Index has outperformed the broader MSCI ACWI on a year-to-date, three-year and five-year basis, according to data from FE Fundinfo.
|
YTD |
Three years |
Five years |
|
| MSCI ACWI ESG Leaders |
-2.46% |
27.56% |
47.14% |
| MSCI ACWI |
-3.21% |
24.78% |
43.69% |
Source: FE Fundinfo
With the advent of Covid-19, several fund managers have pushed the ESG agenda at the forefront, arguing that companies that focus on the long-term needs of society are expected to perform better than their conventional peers in times of crisis.
Investors seem to be responding. Globally, around $40bn was poured into sustainable funds during the first quarter, which compares with an outflow of $384.7bn for the overall fund universe, according to a Morningstar report.
“Covid-19 has created a lot of uncertainty in global markets and economies. Given the current crisis, several companies have withdrawn their dividends and guidance,” Ingrid Kukuljan, Federated Hermes’ head of impact investing, said in a recent webinar organised by the firm.
“However, this has not been the case for the companies that we invest in.”
More resilient?
Kukuljan claimed that less than a quarter of the companies that the firm has invested in have retracted their guidance.
“The reason for this is that they are providing critical product and services and they are exposed to enduring sources of demand and are focused on solving the critical needs of the planet.”
One example is US-based Dexcom, which has a 70% market share in the glucose monitoring system for type I diabetes in the US market, Kukuljan said. While the company is not among the top 10 holdings in the firm’s Impact Opportunities Equity Fund, it accounts for 3.81% of the fund’s portfolio as of the end of April, according to the fund’s monthly review statement.
The fund, which has around 30 holdings, identifies companies in nascent industries that are likely to grow their business models to become mainstream companies in the future.
Kukuljan explained that Dexcom was able to revolutionise glucose monitoring. Traditionally, blood samples were needed to measure glucose levels, which may often give inaccurate levels. However, Dexcom was able to create a sensor that is inserted beneath the skin and can continuously measure glucose levels that can be monitored using the mobile phone or smartwatches.
“Last year, Dexcom sales were at $1.5bn from just $80m 10 years ago,” Kukujan said.
“They have achieved this from scratching the surface only, as their focus to-date has only been type 1 diabetes. They are now moving into type 2 diabetes, which is going to increase their total addressable market,” she said.
In this year alone, the share price of Dexcom increased 73%, making it one of the largest alpha drivers for the Hermes’ Impact Fund, according to the fund’s monthly statement.
Overall, the Impact Opportunities Equity Fund has returned -0.17% year-to-date, which compares with the -3.32% performance of its benchmark index, the MSCI ACWI IMI Index, according to data from FE Fundinfo.
Source: Fund factsheet. As of the end of April
The firm continues to be cautious in the current market environment, nevertheless.
“We expect volatility to persist as the real economic impact of the ongoing Covid crisis begins to show in earnings updates, and are wary that earnings expectations are still on the optimistic side,” the fund’s monthly statement said.
“As such, we are keeping a higher than usual cash position to be deployed, once we feel macro data and earnings reality starts to be reflected.” As of the end of April, the fund had 5.16% of its assets in cash.
The Hermes Impact Opportunities Equity Fund versus its benchmark
