UBS believes a 100% sustainable portfolio can deliver similar or potentially higher returns compared with conventional investment portfolios and offer strong diversification benefits.
The firm manages $488bn in sustainable assets within its $2.6trn global wealth management business, according to a statement released late last week.
“Performance is less of a central topic in discussions with clients than 18-months ago, and especially since the Covid-19 pandemic,” Mario Knoepfel, head of sustainable and impact investing advisory for Asia-Pacific at UBS Global Wealth Management (GWM), told FSA.
“Clients are more concerned now with whether companies’ operations sufficiently manage regulatory risks and disruptive changes prompted by concerns about the environment, labour relations and the wider community,” he said.
In the first 7 months this year, UBS GWM has grown its number of APAC clients in its 100% sustainable cross-asset portfolio by 50%, he said. AUM surged 270% to $1.5bn in the region, while global AUM jumped 330% to $13bn during the period, according to Knoepfel.
Launched in April 2018 in Asia-Pacific, the fund comprises a mixture of ESG bonds and equities, that meet the thresholds of the firm’s proprietary framework.
The portfolio’s balanced strategy rebounded 26% from the end of the market sell-off in March to July with positive performance for the year, outperforming traditional balanced strategies by one-to-two percent year-to-date, noted Knoepfel.
The MSCI World ESG Leaders index has a cumulative three-year return of 30.17%, better than the MSCI AC World index (25.86%), according to FE Fundinfo data. Annualised volatility of the two indices is similar, at 19.74% and 19.50% respectively.
Since the start of 2020, the ESG Leaders index is up 2.45%, compared with 1.78% by the MSCI ACWI, FE Fundinfo data shows.
Sustainable themes
The screening process for UBS GWM’s portfolio scores each company in the firm’s investible universe for six sustainable investing themes, namely: climate change, pollution and waste, water, people, products and service, and governance.
The firm has also offered its private clients a personalised advisory product since last month, whereby the can choose which of those six themes should be prioritised.
“It is too early to identify which themes clients are most prescriptive about, but climate change is certainly among the most important,” said Knoepfel.
“In general, our clients want to know what drives innovation in companies in each sector and the emphasis in their business models, that takes into account ESG factors and risks,” he said.
For instance, a lot of government financing in Europe for companies in response to the pandemic has environment conditionality, such as an insistence on carbon emission reductions and a greater energy efficiency.
In addition, education, healthcare and technology are “front and centre” in the new business models evolving for the post-pandemic world.
But, the implications of ESG trends are not confined to specific sectors.
“Even in the oil and gas industry there are ESG leaders and laggards,” he said.
UBS GWM 100% sustainable, cross-asset portfolio
