Managing customised equity portfolios in house is one of the biggest trends to develop over the next few years among institutional investors, according to a new report from quant technologies provider SigTech.
In his whitepaper – How custom equity portfolios are disrupting pension funds’ ESG and index investing—Daniel Leveau, who manages SigTech’s strategic initiatives for institutional investors, said that the combination of digitising the value chain of the investment management industry, ESG taking centre stage in the investment process and investors’ need to customise their equity investments, has created new opportunities for the industry.
He said: “Five years ago, the idea of creating and executing your own index strategies in-house would have been a daunting task. Today, it is 100% achievable.”
He added that custom equity portfolios allow institutional investors to define an investable universe and tailor their investment strategy to incorporate specific ESG policies and to directly hold individual securities.
Last month Brunel Pension Partnership and FTSE Russell collaborated on the development of a suite of climate-themed equity benchmarks aligned with the Paris Agreement.
Leveau said that by applying the concept of alternative indexing methods, investors can gain exposure to various risk factors that are optimal for them.
“One might want global equity exposure with larger downside risk, another a larger bias to small caps, whereas a third investor might desire a stable income from dividend payments. The same goes for ESG. No two ESG policies are alike. By owning the securities directly, investors can decide to what degree they want to be an active owner through voting and direct engagement,” he explained.
“Investing is not about searching for an existing product that offers the best possible fit to the investor’s needs. It is about creating a product that 100% fulfils the investor’s requirements.”