The ESG filters applied by PME to its equity index portfolio have generated excess returns since 2019, according to an analysis by the Dutch pension scheme for the electronics and technology industry.
However, the €59bn pension fund’s overall return has slightly lagged its benchmark over the period because of an underweight position in large US technology companies.
Since 2019, PME has invested through a customised equity index that excludes companies scoring poorly on ESG criteria such as climate risk, human rights and corporate governance.
According to the fund, the approach reduces long-term investment risk. Results over recent years appear to support that view.
Since 2019, ESG criteria have added an average 0.9% a year to returns in PME’s developed market equities portfolio. In emerging markets, the average annual outperformance has been 1% since 2020.
“Our analyses show that the inclusion of ESG criteria and the application of the exclusion policy over these periods have, on balance, a positive effect on the return of the equity portfolios,” PME said in a press release accompanying its annual report, published this week.
The finding contrasts with the experience of other Dutch pension funds using sustainable indices, including ABP and PFZW, which have not succeeded in outperforming their benchmarks through ESG policies.
Concentration risk
Despite the ESG-related outperformance, PME’s overall equity return has trailed the MSCI World Index by 0.3 percentage points since 2019.
The fund attributed this to “control measures regarding the portfolio construction, including measures to limit the concentration risk”. As a result, PME has maintained an underweight position in large technology companies such as Nvidia, Microsoft and Alphabet.
“The fact that we are lagging behind is mainly due to our choice to invest less in American tech companies. We have exited Meta and have placed a limit on the exposure to other large American tech companies in our portfolio, because we think the concentration risk is too great,” said PME chair Alae Laghrich.
Figures in PME’s annual report show that the fund has reduced its exposure to US assets. At the end of 2024, 35.5% of assets were invested in the US, compared with 31.3% a year later.
“We have reduced our credit portfolio in the US to limit exchange rate risk and the same applies to our real estate portfolio,” a spokesperson told IPE.
Laghrich stressed, however, that there is “no strategic plan” to reduce US investments.
PME has also increased investments in Dutch residential real estate, contributing to a three percentage-point rise in its allocation to European assets, to 56.2%.
Neuberger Berman and Lazard win US equity mandates
PME has appointed Neuberger Berman and Lazard to manage a new actively managed US equity focus portfolio.
Each manager has been awarded a €1.1bn mandate and will invest in a concentrated portfolio of several dozen companies. The mandates together cover 20% of PME’s US equity allocation, with the remaining 80% continuing to be managed passively.
Last year, PME selected Belgian asset manager Candriam to manage its European focus portfolio.
According to a spokesperson, PME opted for partial active management in US equities because it “offers advantages over an index portfolio, because the managers make their own qualitative assessment and are less dependent on external data”.
