Archiv der Kategorie: Asset Allocation

Alternatives: Thematic replace alternative investments

Alternatives: Thematic investments can take up (part) of the allocation which alternative investments should have had in the past. The main reason is a stricter focus on responsible investments. Here I explain, why I support this development:

Extensive alternative and responsible investment experience

I started my financial services career trying to select the best private equity funds worldwide. Soon, I also covered hedge funds, real estate funds and infrastructure funds. In my current multi-asset portfolios, alternatives have a share between a quarter and a third of the portfolios.

In 2015, I developed three innovative ETF-Portfolios. One passively diversified multi-asset portfolio, one pure alternative investment portfolio and one ESG portfolio. The multi-asset ETF-portfolio and the ESG ETF-portfolio will be continued whereas I decided to stop the active offer of my alternatives ETF-Portfolio and will focus on my (multi-theme) SDG ETF-portfolio, instead. I follow a similar approach by replacing my direct listed alternatives ESG-portfolios with SDG-aligend investments.

My traditional multi-asset allocations will not change

My rather large allocation to alternatives is based on scientific studies of aggregated asset allocations of investors worldwide. I use ETFs not only for traditional equity and bond allocations but also for alternative investments. I have documented this most-passive asset allocation approach in detail in my Soehnholz ESG and SDG portfolio book. This approach is and will be applied to my traditional (non-ESG) Weltmarkt ETF-Portfolio and to my multi asset ESG ETF-Portfolio also in the years to come.

Stand-alone alternatives portfolios scrapped from my offering

There are two reasons for my decision to stop offering stand-alone alternatives portfolios: First, I want to focus on even stricter responsible investing and second, I could not find many investors for my “alternatives” portfolios.

The alternatives portfolios were offered to diversify traditional and ESG investment portfolios and I still think that this makes a lot of sense. Unfortunately, the returns of most alternatives market segments lagged the ones of traditional large-cap equities more or less since the start of my portfolios in 2016/2017. And low returns have not been good for sales.

It may well be that the timing of my decision is bad and that market segments such as listed (ESG) infrastructure and (ESG) real estate will perform especially well in the (near) future. But SDG-aligned investments did not perform well, either (see ESG gemischt, SDG schlecht: 9-Monatsperformance 2023 – Responsible Investment Research Blog (prof-soehnholz.com). I expect that they may recover soon. Performance, therefore, did not play a role in my decision.

The reason is, that I want to focus even more than in the past on responsible investments. Therefore, stopping the active offer of my „non-ESG“ alternatives ETF-portfolio should be obvious. But I will also stop to actively offer my direct listed real estate ESG and my listed infrastructure ESG portfolio.

I started similar portfolios at my previous employer in 2013 when there were no such products available in Germany. In 2016, with my own company, I began to offer such portfolios with much stricter ESG-criteria. I could find enough REITs and listed real estate stocks. For listed infrastructure, even though I extended my ideal definition from core infrastructure to also include social infrastructure and infrastructure related companies, I struggled to find 30 companies worldwide which fulfilled my responsibility requirements.

Thematic SDG-aligned portfolios can fill the “alternatives” allocation

But I will not give up on allocations to alternative investments. In the future, most of my actively offered portfolios will be SDG-aligned. I also use ESG-selection criteria in addition to SDG-alignment for all of these portfolios. And my SDG-aligned portfolios have significant exposures to “alternative” investment segments including green and social real estate and infrastructure.

My SDG ETF-Portfolio, for example, currently includes 10 Article 9 ETFs (see Drittes SDG ETF-Portfolio: Konform mit Art. 9 SFDR – Responsible Investment Research Blog (prof-soehnholz.com)). Several of these ETFs invest in infrastructure (e.g. the Clean Water, Clean Energy and Smart City Infrastructure ETF). Two others are purely real estate focused. In addition, my SDG-ETFs are selected as portfolio-diversifiers and typically include a significant number of small cap investments which often have “private equity like” characteristics. Also, SDG-aligned ETF are only admitted for my portfolios if they have a low country- and company-overlap with traditional indices.

And my direct Global Equities ESG SDG portfolios and my mutual fund include about 20% “responsible” infrastructure and 7% social (healthcare and senior housing) real estate stocks in September 2023. In addition, almost half of the stocks in the portfolio are small cap investments (compare Active or impact investing? – (prof-soehnholz.com)).

Both ETF- and direct SDG-aligned portfolios thus can diversify most traditional (large-cap) portfolios. In addition, I will offer investors the ability to easily create bespoke SDG-aligned ESG-portfolios which may well focus on “alternatives”.

Even the performance of my Alternatives ETF- (green in the chart above) and the SDG-ETF portfolio (blue) have been similar for quite some time.

ESG gemischt, SDG schlecht: 9-Monatsperformance 2023

ESG gemischt: Vereinfacht zusammengefasst haben meine nachhaltigen ESG-Portfolios in den ersten 9 Monaten 2023 ähnlich rentiert wie vergleichbare traditionelle aktiv gemanagte Fonds bzw. traditionelle ETFs. Allerdings liefen die SDG-fokussierte (Multi-Themen) und die Trendfolgeportfolios schlecht. Im Jahr 2022 hatten dagegen besonders meine Trendfolge und SDG-Portfolios gut rentiert (vgl. SDG und Trendfolge: Relativ gut in 2022 – Responsible Investment Research Blog (prof-soehnholz.com)).

Traditionelles passive Allokations-ETF-Portfolios gut

Das nicht-nachhaltige Alternatives ETF-Portfolio hat in 2023 bis September 2023 0,2% gewonnen. Dafür hat das regelbasierte „most passive“ Multi-Asset Weltmarkt ETF-Portfolio mit +3,7% trotz seines hohen Anteils an Alternatives relativ gut abgeschnitten, denn die Performance ist sogar etwas besser als die aktiver Mischfonds (+3,2%).

ESG gemischt: Nachhaltige ETF-Portfolios

Vergleichbares gilt für das ebenfalls breit diversifizierte ESG ETF-Portfolio mit +3,5%. Das ESG ETF-Portfolio ex Bonds lag mit +5,4% aufgrund des hohen Alternatives- und geringeren Tech-Anteils erheblich hinter den +10,6% traditioneller Aktien-ETFs. Das ist aber ganz ähnlich wie die +5,3% aktiv gemanagter globaler Aktienfonds. Das ESG ETF-Portfolio ex Bonds Income verzeichnete ein etwas geringeres Plus von +4,3%. Das ist etwas schlechter als die +4,8% traditioneller Dividendenfonds.

Mit -1,1% schnitt das ESG ETF-Portfolio Bonds (EUR) im Vergleich zu -2,2% für vergleichbare traditionelle Anleihe-ETFs relativ gut ab. Anders als in 2022 hat meine Trendfolge mit -4,9% für das ESG ETF-Portfolio ex Bonds Trend nicht gut funktioniert.

Das aus thematischen Aktien-ETFs bestehende SDG ETF-Portfolio lag mit -5,4% stark hinter traditionellen Aktienanlagen zurück und das SDG ETF-Trendfolgeportfolio zeigt mit -13.8% eine sehr schlechte Performance.

Direkte pure ESG und SDG-Aktienportfolios

Das aus 30 Aktien bestehende Global Equities ESG Portfolio hat +7,1% gemacht und liegt damit etwa besser als traditionelle aktive Fonds (+5,3%) aber hinter traditionellen Aktien-ETFs, was vor allem an den im Portfolio nicht vorhandenen Mega-Techs lag. Das nur aus 5 Titeln bestehende Global Equities ESG Portfolio S war mit +6,6% etwas schlechter, liegt aber seit dem Start in 2017 immer noch vor dem 30-Aktien Portfolio.

Das Infrastructure ESG Portfolio hat -8,7% gemacht und liegt damit erheblich hinter den -5,3% traditioneller Infrastrukturfonds und den -3,8% eines traditionellen Infrastruktur-ETFs. Das Real Estate ESG Portfolio hat dagegen nur -1,5% verloren, während traditionelle globale Immobilienaktien-ETFs -3,6% und aktiv gemanagte Fonds -3,9% verloren haben. Das Deutsche Aktien ESG Portfolio hat bis September +2,5% zugelegt. Das wiederum liegt erheblich hinter aktiv gemanagten traditionellen Fonds mit +6,9% und nennenswert hinter vergleichbaren ETFs mit +4,9%.

Das auf soziale Midcaps fokussierte Global Equities ESG SDG hat mit -8,6% im Vergleich zu allgemeinen Aktienfonds sehr schlecht abgeschnitten. Das Global Equities ESG SDG Trend Portfolio hat mit -14,2% – wie die anderen Trendfolgeportfolios –besonders schlecht abgeschnitten. Das noch stärker auf Gesundheitswerte fokussierte Global Equities ESG SDG Social Portfolio hat dagegen mit +3,8% im Vergleich zum Beispiel zu Gesundheitsfonds (-3,2%) ziemlich gut abgeschnitten.

Investmentfondsperformance

Mein FutureVest Equity Sustainable Development Goals R Fonds, der am 16. August 2021 gestartet ist, zeigt nach einem sehr guten Jahr 2022 mit -8,1% eine starke Underperformance gegenüber traditionellen Aktienmärkten. Das liegt vor allem an der Branchenzusammensetzung des Portfolios (weitere Informationen wie z.B. auch den aktuellen detaillierten Engagementreport siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T). Mehrere der Portfoliobestandteile sind nach klassischen Kennzahlen teilweise stark unterbewertet.

Anmerkungen: Die Performancedetails siehe www.soehnholzesg.com und zu allen Regeln und Portfolios siehe Das Soehnholz ESG und SDG Portfoliobuch. Benchmarkdaten: Eigene Berechnungen u.a. auf Basis von www.morningstar.de

Technology risks: Researchpost #139

Technology risks: 17x new research on SDGs, nuclear, blockchain and AI risks, innovation, climate, carbon offsets, ESG ratings, treasuries, backtests and trading, big data, forensic finance, private equity and other alternatives by Patrick Behr, Richard Ennis, Christian von Hirschhausen, Thierry Roncalli, Bernhard Schwetzler and many more (# shows SSRN downloads on August 17^th, 2023):

Social and ecological research (Technology risks)

SDG or green? Take a Deep Breath! The Role of Meeting SDGs With Regard to Air Pollution in EU and ASEAN Countries by Huynh Truong Thi Ngoc, Florian Horky, and Chi Le Quoc as of July 10^th, 2023 (#26): “First, the results show that in ASEAN countries, Goal 10 (Reduced Inequalities) has a negative correlation with most other SDGs while in the EU it shows a broadly positive correlation. … air pollution, particularly SO2 and CO emissions, is positively connected to most SDGs in ASEAN while the trend in the EU is not clear. This could be due to the rapid economic development in ASEAN nations as well …” (p. 19).

Nuclear risks: The Potential of Nuclear Power in the Context of Climate Change Mitigation -A Techno-Economic Reactor Technology Assessment by Fanny Böse, Alexander Wimmers, Björn Steigerwald, and Christian von Hirschhausen as of July 27^th, 2023 (#17): “… we synthesize techno-economic aspects of potential new nuclear power plants differentiating between three different reactor technology types: light-water cooled reactors with high capacities (in the range or above 1,000 MWel), so-called SMRs (“small modular reactor”), i.e., light-water cooled reactors of lower power rating (< 300 MWel) (pursued, e.g., in the US, Canada, and the UK), and non-light water cooled reactors (“so-called new reactor” (SNR) concepts), focusing on sodium-cooled fast neutron reactors as well as high-temperature reactors. … Actual development .. shows an industry in decline and, if commercially available, lacking economic competitiveness in low-carbon energy markets for all reactor types. Literature shows that other reactor technologies are in the coming decades unlikely to be available on a scale that could impact climate change mitigation efforts. The techno-economic feasibility of nuclear power should thus be assessed more critically in future energy system scenarios“ (abstract).

Blockchain risks: On the Security of Optimistic Blockchain Mechanisms by Jiasun Li as of August 15^th, 2023 (#68): “Many new blockchain applications … adopt an “optimistic” design, that is, the system proceeds as if all participants are well-behaving … We point out that such protocols cannot be secure if all participants are rational” (abstract). “Given that alternative solutions are still technically immature, … the community either has to deviate from its pursuit of decentralization and accept a system that relies on trusted entities, or accept that fact their systems cannot be 100% secure” (p. 33).

AI chains: Determining Our Future: How Artificial Intelligence Creates a Deterministic World by Yuval Goldfus and Niklas Eder as of Aug. 9^th, 2023 (#22): “… we demonstrate that AI relies on a deterministic worldview, which contradicts our most fundamental cultural narratives. AI-based decision making systems turn predictions into self-fulfilling prophecies; not simply revealing the patterns underlying our world, but creating and enforcing them, to the detriment of the underprivileged, the exceptional, the unlikely. The widespread utilisation of AI dramatically aggravates the tension between the constraints of environment, society, and past behavior, and individuals’ ability to alter the course of their lives, and to be masters of their own fate. Exposing hidden costs of the economic exploitation of AI, the article facilitates a philosophical discussion on responsible uses. It provides foundations of an ethical principle which allows us to shape the employment of AI in a way which aligns with our narratives and values” (abstract). My comment: My opinion regarding AI for sustainable investments see How can sustainable investors benefit from artificial intelligence? – GITEX Impact – Leading ESG Event 2023

Musical therapy? The Value of Openness by Joshua Della Vedova, Stephan Siegel, and Mitch Warachka as of July 5^th (#48): “We construct a novel proxy for openness using MSA-level data (Sö: US Metropolitan Statistical Areas) from radio station playlists. This proxy is based on the adoption of new music and varies significantly across MSAs. Empirically, we find a robust positive association between openness and proxies of value creation such as the number of new ventures funded by venture capital, the number of successful exits by new ventures, the proportion of growth firms, and Tobin’s q. … An instrumental variables procedure confirms that openness is highly persistent with variation across MSAs being evident more than a century before the start of our sample period. … our results are especially strong for young firms that are more likely to depend on new products“ (p. 26/27).

ESG and impact investing research

Climate stress: From Climate Stress Testing to Climate Value-at-Risk: A Stochastic Approach by Baptiste Desnos, Théo Le Guenedal, Philippe Morais, and Thierry Roncalli from Amundi as of July 5^th, 2023 (697): „This paper proposes a comprehensive climate stress testing approach to measure the impact of transition risk on investment portfolios. … our framework considers a bottom-up approach and is mainly relevant for the asset management industry. … we model the distribution function of the carbon tax, provide an explicit specification of indirect carbon emissions in the supply chain, introduce pass-through mechanisms of carbon prices, and compute the probability distribution of potential (economic and financial) impacts in a Monte Carlo setting. Rather than using a single or limited set of scenarios, we use a probabilistic approach to generate thousands of simulated pathways” (abstract).

Disaster flows: Flight to climatic safety: local natural disasters and global portfolio flows by Fabrizio Ferriani, Andrea Gazzani, and Filippo Natoli from the Bank of Italy as of July 5^th, 2023 (#35): “… we find that local natural disasters have significant effects on global portfolio flows. First, when disasters strike, international investors reduce their net flows to equity mutual funds exposed to affected countries. This only happens when disasters occur in the emerging economies that are more exposed to climate risk. Second, natural disasters lead investors to reduce their portfolio flows into unaffected, high-climate-risk countries in the same region as well. Third, disasters in high-climate-risk emerging economies spur investment flows into advanced countries that are relatively safer from a climate risk standpoint“ (abstract).

Carbon offsets: Portfolio Allocation and Optimization with Carbon Offsets: Is it Worth the While? by Patrick Behr, Carsten Mueller, and Papa Orge as of Aug. 10^th, 2023: “We explore whether the integration of carbon offsets into investment portfolios improves performance. … our results show that investment strategies that include such offsets broadly achieve higher Sharpe Ratios than the diversified benchmark, with the long-short strategy performing best”.

Useless ratings? ESG Ratings Management by Jess Cornaggia and Kimberly Cornaggia as of July 27^th, 2023 (#92): “We use data from an ESG rater that incorporates feedback from firms during the rating process and produces ratings at a monthly frequency. We … find that when the rater changes the weight it applies to certain criteria in the creation of its ESG ratings, firms respond by adjusting their reported ESG behavior in the same month. … we do not observe real changes in the likelihood that firms are embroiled in ESG controversies, or that they reduce their release of toxic chemicals because of these adjustments. Rather, it appears firms “manage” their ESG ratings for the benefit of ESG-conscious investors and customers” (p. 26/27). My comment: I do not use market leading MSCI or ISS or Sustainalytics ratings and also because of my custom rating profile (Best-in-Universe with specific approach to treat missing data) the risk of such ratings management should be low, see Noch eine Fondsboutique? – Responsible Investment Research Blog (prof-soehnholz.com)

AI and other investment research (Technology risks)

ETFs effect Treasuries: ETF Dividend Cycles by Pekka Honkanen, Yapei Zhang, and Tong Zhou as of Aug. 10^th, 2023 (#340): “… in the “ETF dividend cycle,” ETFs accumulate incoming corporate dividends in MMFs (Sö: Money Market Funds) gradually but withdraw them abruptly in large amounts when they themselves have to pay dividends to investors. … This … leads to large, sudden outflows from MMFs, forcing these funds to liquidate some of their underlying assets. We find that these liquidations are concentrated in short-term Treasury bonds. … in the aggregate time series, an ETF dividend distribution event of average size leads to increases in short-term Treasury yields by approximately 0.38-0.58 basis points. … The total value fluctuation in the Treasury market could be considerable, as ETFs distribute dividends on 205 trading days in 2019, for example” (p. 9/10).

Backtest-problems: Market Returns Are Estimated with Error. How Much Error? by Edward F. McQuarrie as of July 24^th, 2023 (#30): “For periods beginning 1926, it is conventional to suppose that historical market returns are known with reasonable accuracy. This paper challenges that comfortable certainty. Multiple indexes of market return are examined to show that return estimates do not closely agree across indexes and are unstable within index over time. The paper concludes that two-decimal precision—to the whole percentage point, with an error band of plus or minus one percentage point—would better reflect the accuracy of historical estimates of annual market return” (abstract).

Easy profits: Intraday Stock Predictability Everywhere by Fred Liu, and Lars Stentoft as of July 5^th, 2023 (#1167): “First, we demonstrate that the market and sector portfolios are highly predictable. … we show that portfolio profitability mostly remains high after accounting for transaction costs, and is largely orthogonal to common risk factors. … we further exploit machine learning forecasts of individual stocks by constructing machine learning intraday portfolios, and demonstrate that a long-short portfolio achieves a Sharpe ratio of up to 4 after transaction costs. … demonstrate that less liquid firms are more predictable and firms which are more actively traded and volatile tend to be more profitable … intraday predictability and profitability generally decrease as the time horizon increases” (p. 28/29). My comment: If this is so easy, why do Quant funds typically disappoint? The information is important for stock trading, though (for my trading approach see Artikel 9 Fonds: Sind 50% Turnover ok? – Responsible Investment Research Blog (prof-soehnholz.com)).

Satellite vs. people: Displaced by Big Data: Evidence from Active Fund Managers by Maxime Bonelli and Thierry Foucault as of Aug. 2^nd, 2023 (#325): “We test whether the availability of satellite imagery data tracking retailer firms’ parking lots affects the stock picking abilities of active mutual fund managers in stocks covered by this data. … we find that active mutual funds’ stock picking ability declines in covered stocks after the introduction of satellite imagery data for these stocks. This decline is particularly pronounced for funds that heavily rely on traditional sources of expertise, indicating that these managers are at a higher risk of being displaced by new data sources“ (p. 29/30).

AI bubble? Artificial Intelligence in Finance: Valuations and Opportunities by Yosef Bonaparte as of August 15^th, 2023 (#65): “First, we display the current and projected AI revenue by sector, technology type, and geography. Second, present valuation model to AI stocks and ETFs that accounts for AI sentiment as well as fundamental analyses. Our findings demonstrate that the AI revenue will pass $2.7 trillion in the next 10 years, where the service AI technology stack will contain 75% of the market share (as of 2023 it is 50% of the market share). As for AI stock valuation, we present two main models to adopt when we value stocks“ (abstract).

Bad finance: What is Forensic Finance? by John M. Griffin and Samuel Kruger as of Aug. 10^th, 2023 (#467): “We survey a growing field studying aspects of finance that are potentially illegal, illicit, or immoral. Some of the literature is investigative in nature to uncover malfeasance that is recent and possibly ongoing. … The work spans newer areas such as cryptocurrencies, financial advisor and broker misconduct, and greenwashing; and newer research in established fields that are still developing, such as insider trading, structured finance, market manipulation, political connections, public finance, and corporate fraud. We highlight investigative forensic finance, common economic questions, common empirical methods, industry and political opposition, censoring, and the importance of avoiding publication biases“ (abstract).

Specialist PE: Specialization in Private Equity and Corporate Financial Distress by Benjamin Hammer, Robert Loos, Lukas Andreas Oswald, and Bernhard Schwetzler as of Aug. 7^th, 2023 (#384): “We investigate the impact of industry specialization of private equity firms on financial distress risk of portfolio companies … Difference-in-differences estimates suggest an increase in distress risk through private equity backing. The effect is stronger for specialist-backed firms than for generalist-backed firms relative to a carefully matched control group. However, specialist-backed firms can afford the increase in distress risk because they are less risky than generalist-backed firms before the buyout. Overall, our findings are consistent with the idea that greater idiosyncratic risk in specialized PE portfolios induces more risk-averse target selection” (abstract).

Costly diversification: Have Alternative Investments Helped or Hurt? by Richard M. Ennis as of August 3^rd, 2023 (#135): “This paper shows that since the GFC (Sö: Global Financial Crisis in 2007/2008), US public-sector pension funds’ exposure to alternative investments is strongly associated with a reduction in alpha of approximately 1.2 percentage points per year relative to passive investment. While exposure to private equity has arguably neither helped nor hurt, both real estate and hedge fund exposures have detracted significantly from performance. Institutional investors should consider whether continuing to invest in alts warrants the time, expense and reduced liquidity associated with them” (p. 11).

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Impact impact? Researchpost #137

Impact impact? 18x new research on pension taxes, food carbon labels, sector investing, brown divestments, biodiversity, ESG fund flows, governance washing, impact investing, stewardship, shareholder engagement, divestments, social bonds, article 9 funds and asset allocation (# of SSRN downloads on August 3^rd, 2023) by Marco Becht, Tobias Berg, Timo Busch, Thierry Roncalli, Laurens Swinkels and many more

Social and ecological research

Pension taxes: Does a Decrease in Pension Taxes Increase Retirement Savings? An Experimental Analysis by Kay Blaufus, Michael Milde, and Alexandra Spaeth as of June 12^th, 2023 (#34): “Many countries use tax incentives to promote retirement savings. … Using a series of experiments, we demonstrate that decreasing pension tax rates does not encourage retirement savings. … In contrast, an increase in the tax refund rate, i.e., the rate at which individuals can deduct their retirement savings, increases savings. … all subjects were fully informed about the tax rules and passed comprehension tests on these rules. Nevertheless, we observe significant misperceptions regarding taxes on pension income. … an instrument that increases current tax benefits is more effective than one that decreases future tax burdens even if both instruments are economically equivalent. … we show that substituting deferred taxation with economically equivalent immediate taxation increases the (effective) savings rate by 7.2 percentage points without changing tax revenue” (p. 28/29).

Food carbon labels: Should Carbon Footprint Labeling be Mandatory for all Food Products? RCT Shows no Benefit beyond Labeling the Top Third by Pierre Chandon, Jad Chaaban, and Shemal Doshi as of June 12^th, 2023 (#26): “Carbon footprint labels have been shown to lead consumers to choose food products with lower CO2 emissions … We asked 1,081 American consumers to shop in an experimental online grocery store and choose one frozen meal among the full assortment of a major American grocer … A 16.5% reduction in emissions was achieved by labeling the top third of products, with no statistically significant improvement gained by further increasing the proportion of labeled products” (abstract).

ESG and internal control: Corporate Environmental, Social, and Governance (ESG) Performance and the Internal Control Environment by Jacquelyn Sue Moffitt, Jeanne-Claire Alyse Patin, and Luke Watson as of June 15^th, 2023 (#59): “We find that ESG performance is negatively related to the likelihood of general internal control weaknesses, consistent with transparent reporting. We also find that ESG performance is negatively related to company-level internal control weaknesses, which are considered relatively severe. Further, we find that ESG performance is negatively associated with specific internal control weaknesses that indicate a lack of ethical tone at the top. … Overall, our results suggest that ESG performance is positively associated with the strength of the internal control environment“ (abstract).

ESG investing research: Impact impact?

Environmental sector investing: Environmental Preferences and Sector Valuations by Tristan Jourde and Arthur Stalla-Bourdillon as of July 7^th, 2023 (#75): “… we explore the dynamic nature of pro-environmental preferences among investors through the lens of sector valuations in global equity markets from 2018 to 2021. … we find that firms’ green and brown sector affiliations are significantly priced in the global equity market, positively for green sectors and negatively for brown sectors. Furthermore, companies operating in green sectors have become increasingly overvalued relative to the rest of the market between 2018 and 2021, and vice versa for those operating in brown sectors … In addition, the turnover rate of both green and brown companies has increased over the last years …“ (p. 19). My comment: An update of the study after the 2022 market development would be interesting.

Brown divestments: Climate risk and strategic asset reallocation by Tobias Berg, Lin Ma, and Daniel Streitz as of Feb. 28^th, 2023 (#128): “We document that large emitters, i.e., firms that are part of the Climate Action 100+ scheme, started to reduce their combined Scope 1 and 2 emissions by around 12% in the years after the 2015 Paris Agreement relative to other public firms with positive carbon emission levels. … There is no evidence for increased engagements in other emission reduction activities. … we find that buyers of large asset sales tend to be private, financial, and other firms that do not disclose emissions to the Carbon Disclosure Project. … We provide evidence that is consistent with increased regulatory risk being a main driver of the effects“ (p. 25/26). My comment: I am skeptical regarding Transition investments see ESG Transition Bullshit? – Responsible Investment Research Blog (prof-soehnholz.com)

Biodiversity premium: A closer look at the biodiversity premium by Guillaume Coqueret and Thomas Giroux as of Juy 21^st, 2023 (#163): “… while this (Sö: biodiversity) premium is not unconditionally strong, there are dimensions along which it may prove substantial. For instance, air pollution is priced significantly more than land use, even though the latter has a more decisive impact on the environment. Another important subtlety lies in the distinction between realized versus expected returns (from investors). Our results show more pronounced effects on expected returns. … Lastly, like all other premia, the biodiversity factor experiences fluctuating returns. The recent period is associated with largely negative premia, especially for expected returns. Our analysis shows that a few variables are able to explain some time-variations, notably attention to biodiversity and climate, oil prices, and consumer sentiment” (p. 17).

Good ESG capital: ESG Capitals and Corporate Value Creation by Banita Bissoondoyal-Bheenick, Scott Bennett, and Angel Zhong as of June 12^th, 2023 (#110): “Our paper has documented that investing in ESG capital … can lead to better short-term and long-term shareholder wealth … In the short term, the ESG capital triggers sharp financial return improvement for a firm to improve their ESG capital from a very low point (i.e., a firm that seldom considers ESG activities and culture) to an average ESG performance. Such positive effects are small but still positive if the firm continues to enhance its ESG capital from the middle range towards the top level in the market. We also find that investment in ESG capital can positively and interactively influence other capitals, such as financial, innovation and manufacturing capitals, to improve financial returns. Under a good ESG environment, more holding of the other capitals could lead to more significant financial returns than each capital could achieve individually“ (p. 23/24).

Provider-friendly ESG? Machine-Learning about ESG Preferences: Evidence from Fund Flows by George O. Aragon and Shuaiyu Chen as of July 29^th, 2023 (#36): “We first construct a broad dataset of ESG scores for active equity mutual funds based on funds’ stock holdings and stock-level scores from six prominent ESG data providers. We document substantial dispersion in scores across providers, but that many scores nevertheless have predictive power for flows. … Over our 2010–2020 sample period, we find that funds with higher ESG benefits subsequently realize higher flows, lower net returns against the benchmark, lower value-added from net returns, and hold stocks that underperform other stocks. We estimate that investors pay an annual premium of $11 million to invest in a fund with ESG benefits in the top decile. Overall, our findings shed new light on the relevance of ESG scores and the ESG preferences of investors“ (p. 23). My comment: The fund flows should be positive for my pure ESG fund and portfolios, see e.g. Artikel 9 Fonds: Kleine Änderungen mit großen Wirkungen? – (prof-soehnholz.com)

Governance-washing: The G-pillar in ESG: how to separate the wheat from the chaff in comply-or-explain approach? by Daniela Venanzi as of June 26^th, 2023 (#24): “This study tries to verify if a gap exists between apparent and real compliance to CG (Sö; Corporate Governance) Code requirements in a sample of Italian listed financial companies (mostly banks), with reference to two areas (independence of board members and transparency) that mostly make decision-making unbiased by conflicts of interests and are therefore crucial for corporate sustainability. We find opacity/obfuscation in CG narrative and avoidance/concealment strategies also in banks considered “CG champions”, more rarely non-compliance clearly declared and appropriately explained” (abstract).

ESG predictions: Are ESG ratings informative to forecast idiosyncratic risk? by Christophe Boucher, Wassim Le Lann, Stéphane Matton, and Sessi Tokpavi as of July 11^th, 2023 (#71): “The contribution of this article is to propose a formal statistical procedure for assessing the informational content in ESG ratings. … We apply our procedure to evaluate two leading ESG rating systems (Sustainalytics and Asset4) in three investment universes (Europe, North America, and the Asia-Pacific region). The results show that the null hypothesis of a lack of informational content in ESG ratings is strongly rejected for Europe, while the results are mixed and predictive accuracy gains are lower for the other regions. Furthermore, we find that the predictive accuracy gains are higher for the environmental dimension of the ESG ratings. Importantly, we find that the predictive accuracy gains derived from ESG ratings increase with the level of consensus between rating agencies in all three universes, while they are low for firms over which there is a high level of disagreement“ (p. 31).

Risk-reducing disclosure: ESG Disclosure, CEO Power and Incentives and Corporate Risk-taking by Faek Menla Ali, Yuanyuan Wu, and Xiaoxiang Zhang as of July 25^th, 2023 (#19): “… we analyze the impact of ESG disclosure on firm risk-taking within US companies. … the reduction in corporate risk-taking due to ESG disclosure mitigates excessive risk-taking rather than leading to risk avoidance“ (p. 26).

Impact investing research: Impact impact?

Impact impact? Missing the Impact in Impact Investing Research – A Systematic Review and Critical Reflection of the Literature by Deike Schlütter, Lena Schätzlein, Rüdiger Hahn, and Carolin Waldner as of July 6^th, 2023: “Impact investing (II) aims to achieve intentional social impact in addition to financial return. … the growing academic literature on II is scattered across a variety of disciplines and topics, with inconsistencies in terminology and concepts and a paucity of theoretical explanations and frameworks. … Despite the fact that II aims to create a measurable societal impact, this impact of II, its raison d’être, is not scrutinized in the literature“ (abstract).

Stewardship overview: Investor Stewardship: The State of the Art and Future Prospects by Dionysia Katelouzou as of June 22^nd, 2023 (#46): “Within less than fifteen years fifty-five soft-law stewardship codes have been developed across 23 jurisdictions on six continents and investor stewardship became the standard term of reference for the role of institutional investors in addressing not only corporate governance but also environmental and social issues. … Nevertheless, there is still a continuing lack of clarity or consensus over what regulators and investors deem to be a good investor steward. … Institutional investors acting as stewards are expected to exercise power and influence over their assets, on behalf of others, and for others. … Finally, I look at the future of investor stewardship, focusing specifically on two ongoing trends, that of green stewardship and disintermediated stewardship“ (abstract).

ESG engagement: Does Paying Passive Managers to Engage Improve ESG Performance? by Marco Becht, Julian R. Franks, Hideaki Miyajima and Kazunori Suzuki as of July 26^th, 2023 (#283): “… the Japanese Government Pension Investment Fund (GPIF), the largest public pension fund in the world … gave its largest passive manager a remunerated mandate to improve the environmental (E), social (S) and governance (G) performance of portfolio companies. … engagement by the asset manager has resulted in improvements in some of the ESG scores for mid- and large cap companies; small-cap companies were rarely engaged. … we find evidence that GPIF’s portfolio tilt towards ESG indexes has created financial incentives to improve ESG scores” (abstract).

Career first? Exit or Voice? Divestment, Activism, and Corporate Social Responsibility by Victor Saint-Jean as of June 21^st, 2023 (#80): “Using a classification framework based on US mutual funds’ portfolio holdings and votes on S-related shareholder proposals, I show that voice funds generally do better than exit funds when it comes to curtailing firms’ anti-social behavior. The exit strategy relies on the threat of lower stock prices and is effective only at firms with high CEO wealth-performance-sensitivity. Voice funds threaten directors’ reelection, and are thus more effective in general, especially when elections are approaching. Taken together, my results point to the career concerns of the leadership as driving pro-social change when shareholders demand it” (abstract).

No social premium: Green vs. Social Bond Premium by Mohamed Ben and Thierry Roncalli from Amundi as of May 21^st, 2023 (#102): “Between 2019 and 2022, the greenium is about −3 bps on average, meaning that, all else being equal, investors are willing to forsake a small share of returns in exchange for environmental benefits. … For the social bond premium, we notice fragmented estimates of the premium in the secondary market. In the long run, the premium is close to zero and equal to −0.3 bps on average. … we notice that the social bond premium is not positively correlated with the greenium. … non-euro projects are subject to a higher premium“ (p. 26/27).

Article 9 segments: SFDR Article 9: Is it all about impact? by Lisa Scheitza and Timo Busch as of July 17^th, 2023 (#235): “We investigate more than 1,000 investment funds that are classified under Article 9 of the EU Sustainable Finance Disclosure Regulation (SFDR). … while 60% of funds follow an impact-oriented investment strategy, we identify 40% that are not impact-related but rather pursue an Environment, Social, and Governance (ESG) investment strategy. Generally, we do not find significant differences in ESG scores and returns between ESG-related and impact-related funds. Yet, impact-related funds have higher SDG impact scores and higher management fees than ESG-related funds. Downgraded Article 9 funds, i.e., funds that changed SFDR status by January 2023, however, tend to follow less ambitious investment approaches and realize lower returns than funds that maintained their SFDR statuses“ (abstract). “ …. we find no significant differences in risk-adjusted returns between ESG-related investments and impact-related investments among Article 9 funds” (p. 16). My comment: My impact approach see Active or impact investing? – (prof-soehnholz.com)

Other investment research

Asset allocation problem? Empirical evidence on the stock-bond correlation by Roderick Molenaar, Edouard Sénéchal, Laurens Swinkels, and Zhenping Wang as of July 26^th, 2023 (#377): “Our historical data starting in 1875 indicates that a positive stock-bond correlation has been more common than a negative one, even though the latter has been observed mostly in the past two decades. Our overarching finding is that for the post-1952 period with independent central banks, a positive stock-bond correlation is observed during periods with high inflation and high real returns on Treasury bills. … Historical regimes with positive stock-bond correlation are associated with higher volatility risk of a 60/40 portfolio and lower Sharpe ratios“ (p. 25/26). My comment: My most-passive allocation approach see Microsoft Word – 230720 Das Soehnholz ESG und SDG Portfoliobuch

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Impact impact? Advert for German investors:

“Sponsor” my research by investing in and/or recommending my global small/midcap mutual fund (SFDR Art. 9). The fund focuses on social SDGs and uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement with currently 28 of 30 companies engaged: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

ESG gut: 1. Halbjahr gut für ESG- und schlecht für SDG-Portfolios

ESG gut: Vereinfacht zusammengefasst haben meine nachhaltigen Portfolios im ersten Halbjahr 2023 ähnlich rentiert wie vergleichbare traditionelle aktiv gemanagte Fonds aber etwas schlechter als traditionelle ETFs. Während die ESG-Portfolios dabei relativ gut abschnitten, waren SDG-fokussierte (Multi-Themen) Portfolios im ersten Halbjahr 2023 relativ schlecht. Außerdem haben die Trendfolgesignale im ersten Halbjahr 2023 zu Verlusten gegenüber Portfolios ohne Trendfolge geführt. Das war 2022 noch anders: Im Vorjahr haben besonders meine Trendfolge und SDG-Portfolios gut rentiert (vgl. SDG und Trendfolge: Relativ gut in 2022 – Responsible Investment Research Blog (prof-soehnholz.com)).

Traditionelle passive Allokations-ETF-Portfolios

Das nicht-nachhaltige Alternatives ETF-Portfolio hat im ersten Halbjahr 2023 -1,3% verloren. Dafür hat das regelbasierte „most passive“ Multi-Asset Weltmarkt ETF-Portfolio im ersten Halbjahr mit +4% trotz seines hohen Anteils an Alternatives relativ gut abgeschnitten, denn die Performance ist ähnlich wie die aktiver Mischfonds (+4,1%).

ESG gut: Auf Environmental, Social und Governance und Sustainable Development Goal fokussierte ETF-Portfolios

Vergleichbares gilt für das ebenfalls breit diversifizierte ESG ETF-Portfolio mit +4%. Das ESG ETF-Portfolio ex Bonds lag mit +7,1% aufgrund des hohen Alternatives-Anteils zwar hinter den +10,6% traditioneller Aktien-ETFs aber etwas vor den +6,8% aktiv gemanagter globaler Aktienfonds. Das ESG ETF-Portfolio ex Bonds Income verzeichnete ein etwas geringeres Plus von +6,1%. Das ist aber besser als die +4,9% traditioneller Dividendenfonds.

Mit -1,3% schnitt das ESG ETF-Portfolio Bonds (EUR) im Vergleich zu +1,5% für vergleichbare traditionelle Anleihe-ETFs relativ schlecht ab. Anders als in 2022 hat meine Trendfolge im ersten Halbjahr mit +0,4% für das ESG ETF-Portfolio ex Bonds Trend auch nicht gut funktioniert.

Das aus thematischen Aktien-ETFs bestehende SDG ETF-Portfolio lag mit +1% erheblich hinter traditionellen Aktienanlagen zurück und das SDG ETF-Trendfolgeportfolio zeigt mit -4% eine relativ schlechte Performance.

Direkte pure ESG und SDG-Aktienportfolios

Das aus 30 Aktien bestehende Global Equities ESG Portfolio hat im ersten Halbjahr +6,5% gemacht und liegt damit etwa gleichauf wie traditionelle aktive Fonds aber hinter traditionellen Aktien-ETFs, was vor allem an den im Portfolio nicht vorhandenen Mega-Techs lag. Das nur aus 5 Titeln bestehende Global Equities ESG Portfolio S war mit +3,7% schlechter, liegt aber seit dem Start in 2017 immer noch vor dem 30-Aktien Portfolio.

Das Infrastructure ESG Portfolio hat +1,1% gemacht und liegt damit vor den +0,3% traditioneller Infrastrukturfonds aber hinter den +3,3% eines traditionellen Infrastruktur-ETFs. Das Real Estate ESG Portfolio hat im ersten Halbjahr -6,3% verloren, während traditionelle globale Immobilienaktien-ETFs mit -1% und aktiv gemanagte Fonds nur um die -1,4% verloren haben. Das Deutsche Aktien ESG Portfolio hat im ersten Halbjahr +10,3% zugelegt. Das liegt hinter aktiv gemanagten traditionellen Fonds mit +11,5% und nennenswert hinter vergleichbaren ETFs mit +15,2%.

Dasauf soziale Midcaps fokussierte Global Equities ESG SDG hat mit -2,1% im Vergleich zu allgemeinen Aktienfonds schlecht abgeschnitten. Allerdings haben aktive gemanagte Gesundheitsfonds mit -1,0% ebenfalls schlecht rentiert. Das Global Equities ESG SDG Trend Portfolio hat mit -5,8% – wie die anderen Trendfolgeportfolios – im ersten Halbjahr nicht gut abgeschnitten. Das noch stärker auf Gesundheitswerte fokussierte Global Equities ESG SDG Social Portfolio hat mit -1,8% ebenfalls unterdurchschnittlich rentiert.

Investmentfondsperformance

Mein FutureVest Equity Sustainable Development Goals R Fonds, der am 16. August 2021 gestartet ist, zeigt nach einem sehr guten Jahr 2022 vor allem aufgrund des immer noch relativ starken Gesundheitsfokus mit -1,9% eine erhebliche Underperformance gegenüber traditionellen Aktienmärkten. Insgesamt ist die Performance seit dem Fondsstart weiterhin aber ähnlich wie die von traditionellen aktiv gemanagten Aktienfonds (weitere Informationen wie z.B. auch den aktuellen detaillierten Engagementreport siehe FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T und Artikel 9 Fonds: Kleine Änderungen mit großen Wirkungen? – (prof-soehnholz.com)).

Finfluencers: Researchpost #126

Finfluencers: 14x new research on CO2 storage, climate learnings, sustainable bonds, diversity, impact investing, active investing, and finfluencers by Laurens Swinkels, Alex Edmans, Caroline Flammer, Simon Glossner, Jeffrey Ptak, Michael Kitces, Norman Schürhoff, Christian Klein et al. (# indicates the number of SSRN downloads on May 9th, 2023)

Ecological and social research

CO2 Storage? CO2 storage or utilization? A real options analysis under market and technological uncertainty by Hanne Lamberts-Van Assche, Maria Lavrutich, Tine Compernolle, Gwenny Thomassen, Jacco Thijssen, and Peter M. Kort as of April 24^th, 2023 (#8): “First, the presence of technological and market uncertainties … increase the barriers to invest in CCS or CCU. Second, when the firm anticipates the arrival of a more attractive CCU solution in the future, it will not postpone the investment in CCS. …. Third, higher uncertainty in the CO2 price, i.e. higher σ, increases the investment thresholds, while a higher trend in the CO2 price, i.e. higher α, decreases the investment thresholds for CCS and CCU. … First, policymakers should aim to ensure stability and predictability in the CO2 price, to lower the volatility σ of the CO2 price. Reducing the market uncertainty will lower the CO2 price investment thresholds for CCS, CCU and CCUS. Second, they should also commit to an increasing growth rate in the CO2 price in the EU ETS. When firms expect higher growth rates for the CO2 price in the future, they are more favourable to invest in CCS, CCU and CCUS sooner. Finally, policymakers should realize that CCU and CCS can be complementary solutions” (p. 32/33).

Climate-information matters: Complexity and Learning Effects in Voluntary Climate Action: Evidence from a Field Experiment by Johannes Jarke-Neuert, Grischa Perino, Daniela Flörchinger, and Manuel Frondel as of April 16^th, 2023 (#26): “Exploiting the fact that timing matters, we have empirically investigated how individuals respond to (a) having the choice about the timing of their voluntary abatement efforts in the form of retiring an emission allowance and to (b) being confronted with either no, simple but counter-intuitive, or complex but intuitive information about the effectiveness-ranking of options. To this end, we have conceived a field experiment with more than four thousand participants that was embedded in a survey conducted in Germany in 2021 … Adding information did not systematically affect contributions overall, but substantially increased their effectiveness. … The uptake of information provided was most pronounced by individuals who most strongly believed in the opposite ranking“ (p. 15/16).

German pension wealth: Accounting for pension wealth, the missing rich and under-coverage: A comprehensive wealth distribution for Germany by Charlotte Bartels, Timm Bönke, Rick Glaubitz, Markus M. Grabka, and Carsten Schröder as of April 25^th, 2023 (#13): “We found that including pension wealth increases the wealth-income ratio of German households from 570% to 850%. … pension wealth plays an equalizing role: The wealth share of the bottom 50% increases from 2% to 9% when including pension wealth, whereas that of the top 1% declines from 30% to 20%. However … Pension wealth is not transferable and, hence, differs significantly from marketable assets such as financial investments or housing“ (p. 12).

Responsible investment research: Finfluencers

Green and other bonds: Social, Sustainability, and Sustainability-Linked Bonds by Gino Beteta Vejarano and Laurens Swinkels from Robeco as of April 24^th, 2023 (#107): “… several variations of sustainable bonds appearing in the market, where either use of proceeds are earmarked for sustainable activities, or coupon payments depend on sustainability targets. Despite the fast growth, the sustainable bond market is currently less than 4% of the overall bond market, with the green bond market accounting for half of it. Social and sustainability bonds tend to be issued by government or government-related institutions and, therefore generally have higher credit quality than sustainability-linked bonds, which are much more popular in the corporate sector. … The yields on sustainable bonds tend to be only marginally lower than those on conventional bonds with a similar risk profile …. Since correlations between returns on sustainable and conventional bonds are high, the risk and return profile of the portfolio is unlikely to change much when certain conventional bonds are replaced with ESG bonds with similar characteristics …” (p. 28).

Growing greenium? How Large is the Sovereign Greenium? by Sakai Ando, Chenxu Fu, Francisco Roch, and Ursula Wiriadinata as of April 19^th, 2023 (#22): “This paper is the first empirical study to estimate the sovereign greenium using both the twin bonds issued by Denmark and Germany, and panel regression analysis. While the estimated greenium in this paper is not large, it has been increasing over time alongside the level of sovereign green bond issuances. … It remains an open question whether the purpose of the project associated with the green bond is a key determinant of the greenium, and whether green bonds have resulted in the climate outcomes they intended to achieve” (p.9/10).

Good diversity: Diversity, Equity, and Inclusion by Alex Edmans, Caroline Flammer, and Simon Glossner as of May 2^nd, 2023 (#723): “… demographic diversity measures may miss many important aspects of DEI. … Companies with high DEI enjoyed recent strong financial performance and are less levered, suggesting that a strong financial position gives companies latitude to focus on long-term issues such as DEI that may take time to build. Small growth firms also exhibit higher DEI scores, consistent with either greater incentives or ability to improve DEI in such firms. … we find that the percentage of women in senior management is significantly positively associated with DEI perceptions, and this result holds regardless of the gender or ethnicity of the respondents. … DEI is also unrelated to general workplace policies and outcomes, suggesting that DEI needs to be improved by targeted rather than generic initiatives. … we find no evidence of a link between DEI and firm-level stock returns” (p. 25/26).

Impact measure: The Impact Potential Assessment Framework (IPAF) for financial products by Mickaël Mangot and Nicola Stefan Koch of the 2o investing initiative as of March 2023: “The Impact Potential Assessment Framework (IPAF) assesses financial products based only on their actions to generate real-life impact … It is exclusively based on public information provided by the product manufacturers … It is applicable to various types of financial products … serves as a tool against impact-washing by displaying practical limitations of self-labelled “impact products … First, it assesses the (maximum) impact potential of financial products based on impact mechanisms they supposedly apply (in relation to communicated elements in marketing documents). Those impact mechanisms are the ones widely documented by academic research: Grow new/undersupplied markets, Provide flexible capital, Engage actively, Send (market and nonmarket) signals. Second, it evaluates the implementation of that impact potential based on the intensity with which financial products action the various impact mechanisms in connection to success factors documented by academic research”. My comment: I try to provide as much impact as possible with my public equity mutual fund, see https://futurevest.fund/

Green demand: Nachfrage nach grünen Finanzprodukten, Teilbericht der Wissensplattform Nachhaltige Finanzwirtschaft im Auftrag des Umweltbundesamtes von Christian Klein, Maurice Dumrose, Julia Eckert vom April 2023: “… In this project report, the development of the sustainable investment market, especially in the retail sector, is presented and the characteristics of sustainable investments are introduced. Retail investor motives for investing in such products and the requirements retail investors have for sustainable investment products are highlighted. Barriers for retail investors and investment advisors are identified in the area of sustainable investments. Finally, based on these findings, recommendations for political action are proposed, which can lead to a reduction of these barriers and thus increase the acceptance of sustainable investments” (abstract). .. “Die Literatur zeigt eindeutig, dass insbesondere die Fehlannahme der Anlageberatenden, Retail-Investierende hätten kein Interesse an Nachhaltigen Geldanlagen und fragen deshalb nicht aktiv im Beratungsgespräch nach diesen, eine Barriere darstellt. Die Untersuchung von Klein et al. zeigt in diesem Zusammenhang deutlich, dass diese Barriere durch eine verpflichtende Abfrage der Nachhaltigkeitspräferenz der Retail-Investierenden überwunden werden kann. Ferner zeigt der aktuelle Forschungsstand, dass insbesondere ein zu geringes Wissen im Bereich Nachhaltige Geldanlage die zentrale Barriere für Anlageberatende darstellt. Hohe Transaktions- sowie Informationskosten, ein fehlendes kundengerechtes nachhaltiges Produktangebot, Zweifel an dem Beitrag, den Nachhaltige Geldanlagen zu einer nachhaltigen Entwicklung leisten, hohe wahrgenommene Komplexität, Wahrnehmung von Green Washing, Angst vor Haftungsrisiken, potentielle Reputationsrisiken und keine einheitliche bzw. gesetzliche Definition des Begriffs Nachhaltige Geldanlage konnten als weitere Barrieren identifiziert werden“ (S. 42/43).

2 ESG types? Sustainable investments: One for the money, two for the show by Hans Degryse, Alberta Di Giuli, Naciye Sekerci, and Francesco Stradi as of April 26^th, 2023 (#66): “Analyzing a representative sample of Dutch households, we document the existence of two types of households: those that invest in sustainable products for social reasons (social sustainable investors) and those that do it for financial reasons (financial sustainable investors). The two groups are of equal importance but are characterized by different features. The social sustainable investors have higher social preferences, level of education and trust, and are more likely left-wing and less risk-loving. Reliable labelling, reducing greenwashing concerns, and emphasizing typical left-wing thematic linked to sustainable investments is positively related to sustainable investments by social sustainable investors, whereas hyping the benefit in terms of returns of sustainable investments through social media and word of mouth is positively associated with the investment decisions of financial sustainable investors” (abstract).

Traditional and fintech investment research: Finflucencers

Difficult 1/n?: Is Naïve Asset Allocation Always Preferable? by Thomas Conlon, John Cotter, Iason Kynigakis, and Enrique Salvador as of April 28th, 2023 (#90): “For allocation within asset classes, we find only limited evidence of outperformance in terms of risk-adjusted returns for optimized portfolios relative to the naïve benchmark … we find statistical and economic evidence that a bond portfolio that minimizes risk is the only case that provides outperformance of the 1/n rule. This evidence points to challenges in outperforming the equally weighted portfolio, especially when allocating among equities and REITs. When allocating across asset classes, we find that minimum-variance portfolios that include bonds exhibit higher Sharpe ratios than the equally weighted portfolio. These findings also carry over to downside risk, where optimal strategies have a lower VaR, both economically and statistically, than that associated with the equally weighted approach. Allocations across different asset classes also have lower rebalancing requirements, which means they are less affected by the transaction costs” (p. 26). My comment: My equity portfolios are all equal weighted. The most passive world market portfolio should be uses as reference instead of naïve asset allocation which does not work well because auf unclear asset class definitions, see Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com). Regarding optimization limits see Kann institutionelles Investment Consulting digitalisiert werden? Beispiele. – Responsible Investment Research Blog (prof-soehnholz.com)

Active disaster: How Can Active Stock Managers Improve Their Funds’ Performance? By Taking a Vacation—a Long One by Jeffrey Ptak from Morningstar as of May 2^nd, 2023: “While active large-cap managers made thousands of trades worth trillions of dollars over the 10-year period ended March 31, 2023 … The funds’ actual returns were almost identical to what they’d have been had those managers made no trades at all and were worse after adjusting for risk. And that was before fees were deducted”. My comment: With my portfolios/fund I try to trade as little as possible

Wealthtech changes: The Kitces AdvisorTech Map Highlights The Evolving Landscape As It Turns 5 Years Old by Michael Kitces and ben Henry-Moreland as of May 1^st, 2023: “… there now 409 different software solutions … with the total number of solutions more than doubling … Some highlights of these AdvisorTech evolution trends over the past 5 years include: The near-disappearance of the ‚B2B robo‘ tools as advisors demanded better onboarding capabilities but showed an unwillingness to pay for them on top of their broker-dealer or custodial providers … portfolio management tools have increasingly bought or built performance reporting and performance reporters acquired most of the available trading and rebalancing tools in a massive consolidation into what is now the „All-In-One“ category … The growth of the Behavioral Assessments category … The proliferation of specialized financial planning software …The explosion in advisor marketing technology …”

Bad influences: Finfluencers by Ali Kakhbod, Seyed Kazempour, Dmitry Livdan, and Norman Schürhoff as of May 4^th, 2023 (#178): “… instead of following more skilled influencers, social media users follow unskilled and antiskilled finfluencers, which we define as finfluencers whose tweets generate negative alpha. Antiskilled finfluencers ride return and social sentiment momentum, which coincide with the behavioral biases of retail investors who trade on antiskilled finfluencers’ flawed advice. These results are consistent with homophily in behavioral traits between social media users and finfluencers shaping finfluencer’s follower networks and limiting competition among finfluencers, resulting in the survival of un- and antiskilled finfluencers despite the fact that they do not provide valuable investment advice. Investing contrarian to the tweets by antiskilled finfluencers yields abnormal out-of-sample returns, which we term the “wisdom of the antiskilled crowd.”“ (p. 40).

Literacy returns: Financial literacy and well-being: The returns to financial literacy by Sjuul Derkx, Bart Frijns, and Frank Hubers as of April 25^th, 2023 (#21): “Using a panel data set of Dutch households over 2011-2020, we find that initial (2011) … financial literacy positively affects wealth accumulation for up to four years into the future, showing that there is mean-reversion in financial literacy when one no longer invests in it. Considering different age brackets, we document that financial literacy among the young results in higher income generation, while financial literacy among the old leads to greater wealth accumulation” (abstract).

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Advert for German investors: “Sponsor” my research by investing in and/or recommending my article 9 mutual fund. The fund focuses on social SDGs and midcaps, uses separate E, S and G best-in-universe minimum ratings and broad shareholder engagement. The fund typically scores very well in sustainability rankings, e.g. see this free new tool, and the performance is relatively good: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

Q1: Nachhaltige Portfolios mit ordentlicher Rendite im ersten Quartal 2023

Im ersten Quartal 2023 (Q1) haben meine Portfolios wie folgt performt:

Traditionelle most-passive ETF-Portfolios

Dafür, dass das nicht-nachhaltige Alternatives ETF-Portfolio -1,9% verloren hat, hat das regelbasierte Multi-Asset Weltmarkt ETF-Portfolio im ersten Quartal mit +2,1% trotz seines hohen Anteils an Alternatives relativ gut abgeschnitten, denn die Performance ist ähnlich wie die aktiver Mischfonds (+2,3%).

ESG und SDG ETF-Portfolios in Q1

Vergleichbares gilt für das ebenfalls breit diversifizierte ESG ETF-Portfolio mit +2,1%. Das ESG ETF-Portfolio ex Bonds lag mit +3,2% aufgrund des hohen Alternatives-Anteils aber hinter den +4,9% traditioneller Aktien-ETFs und leicht hinter den +3,6% aktiv gemanagter globaler Aktienfonds. Das ESG ETF-Portfolio ex Bonds Income verzeichnet ein etwas geringeres Plus von +2,8%. Das ist aber besser als die +2,0% traditioneller Dividendenfonds. Anders als in 2022 hat meine Trendfolge im ersten Quartal mit -2,8% für das ESG ETF-Portfolio ex Bonds Trend nicht gut funktioniert. Mit -0,2% schnitt das ESG ETF-Portfolio Bonds (EUR) im Vergleich zu +1,5% für vergleichbare traditionelle Anleihe-ETFs ebenfalls relativ schlecht ab.

Das aus thematischen Aktien-ETFs bestehende SDG ETF-Portfolio lag mit +1,8% hinter traditionellen Aktienanlagen zurück und das SDG ETF-Trendfolgeportfolio zeigt mit -3,3% eine relativ schlechte Performance, nachdem es in 2022 outperformt hatte.

Q1: Direkte pure ESG und SDG Aktienportfolios

In 2022 hat das aus 30 Aktien bestehende Global Equities ESG Portfolio hat im ersten Quartal +3,7%gemacht und liegt damit gleichauf wie traditionelle aktive Fonds aber hinter traditionellen Aktien-ETFs. Das aus nur aus 5 Titeln bestehende Global Equities ESG Portfolio S war mit +0,7% dagegen nur knapp positiv, liegt aber seit dem Start in 2017 immer noch etwas vor dem 30-Aktien Portfolio.

Das Infrastructure ESG Portfolio hat +2,9% gemacht und liegt damit vor den +0,4% traditioneller Infrastrukturfonds und vor allen vor den -3,9% eines vergleichbaren Infrastruktur-ETFs. Im Gegensatz dazu hat das Real Estate ESG Portfolio im ersten Quartal -7,4% verloren, während traditionelle globale Immobilienaktien-ETFs und aktiv gemanagte Fonds nur um die -2% verloren haben. Das Deutsche Aktien ESG Portfolio hat im ersten Quartal +8,7% zugelegt. Das liegt etwas hinter aktiv gemangten traditionellen Fonds mit 10% und vergleichbaren ETFs mit ähnlichen Renditen.

Das auf soziale Midcaps fokussierte Global Equities ESG SDG hat mit -2% im Vergleich zu allgemeinen Aktienfonds schlecht abgeschnitten. Allerdings haben aktive gemanagte Gesundheitsfonds mit -2,5% noch schlechter rentiert. Das Global Equities ESG SDG Trend Portfolio hat mit -4,5% – wie die anderen Trendfolgeportfolios – im ersten Quartal nicht gut abgeschnitten. Das noch stärker auf Gesundheitswerte fokussierte Global Equities ESG SDG Social Portfolio hat mit -3,1% ebenfalls unterdurchschnittlich rentiert.

Benchmarkabhängige Fondsperformance-Beurteilung

Mein FutureVest Equity Sustainable Development Goals R Fonds, der am 16. August 2021 gestartet ist, zeigt nach einem sehr guten Jahr 2022 vor allem aufgrund des immer noch relativ starken Gesundheitsfokus mit -0,8% eine erhebliche Underperformance gegenüber traditionellen Aktienmärkten. Insgesamt ist die Performance seit Fondsstart weiterhin aber besser als die von traditionellen aktiv gemanagten Aktienfonds. Auch gegenüber dem mit dem Fonds vergleichbaren Global Equities ESG SDG Portfolio (-2%) wurde eine etwas bessere Rendite erzielt. Zum Jahresende 2022 wurden die Selektionskriterien im Fonds gegenüber dem Portfolio verschärft, indem Gentechnik und auch medizinische Tierversuche komplett ausgeschlossen wurden. Das hat dazu geführt, dass die Gesundheits- und Largecap-allokation im Fonds gegenüber dem Global Equities ESG SDG Portfolio reduziert wurde.

=> Werbung für deutsche Anleger: Mein Fonds FutureVest Equity Sustainable Development Goals R (DE000A2P37T6) konzentriert sich auf soziale SDGs und Midcaps, verwendet separate E-, S- und G-Best-in-Universe-Mindestratings und ein breites Aktionärsengagement. Der Fonds schneidet in der Regel in Nachhaltigkeits-Rankings sehr gut ab, siehe z. B. dieses kostenlose neue Tool. Mehr Infos siehe Artikel 9 Fonds: Kleine Änderungen mit großen Wirkungen?

Fazit Q 1: Nachhaltige wie traditionelle Performance aber Trendfolge schwächelt

Vereinfacht zusammengefasst haben im ersten Quartal 2023 (Q1) meine nachhaltigen ESG und SDG-Portfolios ähnlich rentiert wie vergleichbare traditionelle ETFs bzw. aktiv gemanagte Fonds. Nachdem meine Trendfolgeportfolios in 2022 Verluste in erheblichem Umfang reduzieren konnten, haben die Signale im ersten Quartal 2023 zu Verlusten gegenüber Portfolios ohne Trendfolge geführt.

Nachhaltige ETF-Portfolios seit 2015: Vor- und Nachteile

Nachhaltige ETF-Portfolios: Ich der ESG ETF Portfoliopionier. Und immer wieder werde ich gefragt, warum ich so kritisch in Bezug auf nachhaltige ETFs bin. Hier sind meine wichtigsten Argumente:

ETF-Vorteile

+ ETFs sind regelbasiert und transparent

+ ETS sind günstig

+ Es werden immer mehr und nachhaltigere ETFs angeboten

+ Viele Vermittler und Vermögensverwalter mögen ETF

ETF-Nachteile

– ETFs sind meist an kapitalgewichteten Indizes orientiert und enthalten deshalb oft auch wenig-nachhaltige Branchen und Länder

– ETFs sind meist stark diversifiziert und enthalten deshalb in der Regel auch Wertpapiere von wenig nachhaltigen Emittenten

– Nachhaltige ETFs nutzen oft nur unvollständige Ausschlusskriterien und ESG-Selektionsregeln wie Best-in-Class statt Best-in-Universe und aggregierte statt separate ESG-Ratings

Ziel meiner ETF-Portfolios ist es, die Vorteile zu nutzen und die Nachteile so gut wie möglich zu reduzieren. Dazu biete ich Core und Satellite-Portfolios an, allerdings nur B2B, also für Vermögenverwalter und Vermittler.

ESG ETF Core Portfolios (Nachhaltige ETF-Portfolios)

Start Ende 2015 als ESG ETF-Portfolio
Konzeptionell möglichst nachhaltige ETFs: Start mit Socially Responsible Investment (SRI) ETFs und heute SRI PAB (Paris Aligned Benchmark) und andere, die anhand von separaten E, S und G Best-in-Universe Ratings selektiert werden
Angebot von Multi-Asset-, Aktien-, Anleihen-, Income- und risikogesteuerte ETF-Portfolios

SDG ETF Satellite Portfolios (Nachhaltige ETF-Portfolios)

Start 2019 als ETF-Portfolio mit Themen-ETFs, die möglichst im Einklang mit den nachhaltigen Entwicklungszielen der Vereinten Nationen (SDG) stehen wie erneuerbare Energien, Gesundheit, nachhaltige Ernährung und Infrastruktur
Keine ETFs mit mehr als 5% Allokationen zu unerwünschten Ländern wie China
ETF-Selektion mit separaten E, S und G Best-in-Universe sowie SDG-Ratings
Fokus auf ETFs aus kleinen und mittelgroßen Unternehmen, damit Überschneidungen mit Core-Portfolios möglichst vermieden werden
Angebot einer risikogesteuerten Variante

Core- und Satellite Portfolio-Vergleich

Das Multi-Asset Core-Portfolio enthält aktuell 6 ETFs von 5 Anbietern mit >3.000 Wertpapieren und kostet 0,21% p.a.. Das Satellite-Portfolio beinhaltet 9 ETFs von 5 Anbietern mit >1.000 Aktien zu Kosten von 0,42% p.a.. Damit sind die Portfolios stark risikogestreut und relativ günstig. Und die Performance war bisher typischerweise besser als die von traditionellen aktiv gemanagten Fonds und ähnlich wie die von traditionellen ETF-Portfolios. So spricht nur noch wenig für traditionelle ETF-Portfolios.

Nachhaltige ETF-Portfolios: Fazit

Mit direkten (Aktien-)Portfolios ist mehr mehr Nachhaltigkeit als mit ETFs möglich. Nach meiner eigenen Nachhaltigkeitsbewertung haben die Core-Portfolios einen Nachhaltigkeitsscore von 50% und die Satellite-Portfolios einen von 75% während direkte Aktienportfolios 100% erreichen können. Aber für alle Fans von diversifizieren Portfolios sind solche strengstmöglich nachhaltigen ETF-Portfolios sehr attraktiv. Meine Geschäftspartner und ihre privaten und Stiftungskunden scheinen jedenfalls zufrieden zu sein.

Weiterführende Informationen

Portfolioregeln, Hintergründe, Nachhaltigkeitspolitik etc: Das-Soehnholz-ESG-und-SDG-Portfoliobuch.pdf (soehnholzesg.com) und zum Beispiel Artikel 9 ETF-Portfolios bzw. PAB ETF-Portfolios sind attraktiv – Responsible Investment Research Blog (prof-soehnholz.com)

Performances: Soehnholz ESG (und „Historische Zeitreihen der Portfolios, ebenda) und letzter Blogpost dazu Soehnholz ESG 2021: Passive Allokationsportfolios und Deutsche ESG Aktien besonders gut – Responsible Investment Research Blog (prof-soehnholz.com)

Greenium research and more: Researchposting 117

Greenium research: 25x new research on green subsidies, nature investing, populism, financial crime, ESG regulation, climate agreements, ESG scandals, transition, institutional investors, greenium, CDS, green loans, voting, multi-assets, gold, commodities, real estate, and private equity

Social and ecological research

Good green subsidies? Environmental Subsidies to Mitigate Net-Zero Transition Costs by Eric Jondeau, Gregory Levieuge, Jean-Guillaume Sahuc, and Gauthier Vermandel as of Jan. 13^th, 2023 (#298): “The implementation of a pure carbon tax policy to reduce CO2 emissions would result in substantial GDP losses because firms would divert resources to invest in environmental goods and services that are provided by an immature and low-competition sector. Mitigating the induced recession is possible through a massive subsidization of EGSS (Environmental Goods and Services Sector). By reducing labor costs for both entrants and incumbents operating in this sector, such a policy would accelerate its development and offer a large reduction in the selling price of abatement technologies. … Eventually, the GDP loss would be reduced from $266 trillion between 2019 and 2060 to $145 trillion. Importantly, reducing entry costs in EGSS would accelerate the transition and reduce the GDP loss mainly at the beginning of the transition” (p. 41/42).

More public spending? Nature as an asset class or public good? The economic case for increased public investment to achieve biodiversity targets by Katie Kedward, Sophus zu Ermgassen, Josh Ryan-Collins, and Sven Wunder as of Dec. 28^th, 2022 (#671): “Financial instruments for attracting large-scale private finance into conservation often incur high transaction costs to ensure ecological effectiveness, which potentially conflict with institutional investors’ need for competitive returns, market efficiency, and investment scalability. … Strategies to mobilize investor involvement by using public funds to ‘de-risk’ nature investments may not be as promising as assumed, given the costly exercise required to render nature markets conventionally ‘investible’. … Public financing is often more suitable to incentivize the imminent bundled nature of ecosystem services provided” (abstract).

Money crimes (1): Financial Crime: A Literature Review by Monica Violeta Achim, Sorin Nicolae Borlea, Robert W. McGee, Gabriela-Mihaela Mureşan, Ioana Lavinia Safta (Plesa) and Viorela-Ligia Văidean as of Dec. 19^th, 2022 (#52): “This chapter reviews the literature on some of the subfields of economic and financial crime. Among the topics discussed are tax evasion, bribery, money laundering and corruption in general. The determinants of financial crime are also identified. Several demographic variables are also examined to determine whether gender, age, education, income level, religion, geographic region, size of city, etc., are statistically significant. Nearly 150 studies are mentioned“.

Money crimes (2): Financial Crime: Conclusions and Recommendations by Monica Violeta Achim, Sorin Nicolae Borlea, Mihai Gaicu, Robert W. McGee, Gabriela-Mihaela Mureşan, and Viorela-Ligia Văidean as of Dec. 21^st, 2022 (#14): “This chapter discusses the conclusions and recommendations resulting from the study. A series of infographs is included to summaries the results of the study …” (abstract).

Complex ESG compliance: EU Sustainable Finance: Complex Rules and Compliance Problems by Félix E. Mezzanotte as of Feb. 12th, 2023 (#100): “Complexity is first identified in MiFID II rules covering the legal definition of sustainability preferences and the suitability requirements applicable to asset managers and investment advisors. … complex rules have been found to promote noncompliance. The underlying rationale, supported by this article, is that complex rules amplify the compliance burdens faced by companies” (p. 2).

Advert for German investors: “Sponsor” my research by investing in and/or recommending my article 9 mutual fund. I focus on social SDGs and midcaps, use separate E, S and G best-in-universe minimum ratings and shareholder engagement. The fund typically scores very well in sustainability rankings, e.g. see this free new tool, and the performance is relatively good: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

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ESG confusion and more (Researchposting 114)

ESG confusion: 19x new research on energy, mining, home offices, UN PRI, D&O, ESG ratings, greenwashing, shareholder and bondholder engagements, CEO pay, asset allocation, trading fee, private equity, cryptos

Political (social and ecological) research

Energy tax chaos: Carbon conundrum – How to Save Climate Change Policy from Government Failure by Philip Booth and Carlo Stagnaro from the Institute of Economic Affairs as of Jan. 19^th, 2023 (#5): “In principle, environmental taxes and subsidies should reflect externalities. However, in practice, policy is chaotic with tax treatment reflecting the nature of the fuel, who consumes the fuel and for what purpose the fuel is used. … On average, oil products are taxed at €405 per tonne of oil equivalent in the UK and €334 in the EU27, as compared with €135 and €101 for natural gas and €112 and €84 for coal. This is despite the fact that coal, not oil, poses the largest environmental challenges as far as climate change is concerned. … Subsidies were higher for solar photovoltaics (€1,468 per tonne of oil equivalent in the UK and €2,019 in the EU27), followed by wind power (€961 and €743, respectively). Hydro power and bio-energies received, on average, much lower subsidies. … Subsidies to fossil fuels were generally intended to support consumption rather than production. On average, oil, natural gas and coal received €130, €61 and €86 per tonne of oil equivalent in subsidies in the UK and €320, €47 and €27 respectively in the EU27. … The net effect of taxes and subsidies leads to substantially greater net taxes on oil than on natural gas while coal is taxed the least. The level of net taxes on energy sources does not, in any way, relate to the externalities from the energy source” (Viii-X)

Social mining: Mining for Peace by Roland Hodler, Paul Schaudt, and Alberto Vesperoni as of Jan. 25^th, 2023 (#9):“The energy transition increases the demand for minerals from ethnically diverse, conflict-prone developing countries. We study whether and where mining is possible in such countries without raising the risk of civil conflict. … A crucial insight is that new mining projects do not necessarily translate into more conflict but may pacify the country under the right conditions and the right policies“ (abstract). My comment: Ca. 1% of my investable ESG universe consists of mining stocks

Good home offices: Time Savings When Working from Home by Cevat Giray Aksoy, Jose Maria Barrero, Nicholas Bloom, Steven J. Davis, Mathias Dolls, and Pablo Zarate as of Jan. 17^th, 2023 (#53): “We quantify the commute time savings associated with work from home, drawing on data for 27 countries. The average daily time savings when working from home is 72 minutes in our sample. … Workers allocate 40 percent of their time savings to their jobs and about 11 percent to caregiving activities. People living with children allocate more of their time savings to caregiving“ (abstract).

Advert for German investors: “Sponsor” my research by investing in and/or recommending my article 9 mutual fund. I focus on social SDGs and midcaps and use separate E, S and G best-in-universe minimum ratings. The fund typically scores very well in sustainability rankings, e.g. this free new tool, and the performance is relatively good: FutureVest Equity Sustainable Development Goals R – DE000A2P37T6 – A2P37T

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