Schroders has secured £350m (€400m) from a trio of UK defined contribution (DC) pension schemes to launch a factor investing fund with a sustainability tilt.
The Sustainable Multi-Factor Equity (SMFE) fund uses a proprietary tool, named SustainEx, to process and analyse data related to company reports and financial performance as well as measures of social and environmental impact.
The strategy assesses more then 9,000 companies based on quality, value, momentum, volatility and sustainability factors. It also aims to reduce its carbon footprint by 50% relative to its performance benchmark, the MSCI All Country World index.
Companies in sectors such as tobacco, gambling and weapons manufacturing were excluded, but the company emphasised that exclusion and divestment were not a primary feature of the strategy.
Ashley Lester, head of multi-asset research and systematic investments at Schroders, said the SustainEx system allowed the asset manager to illustrate the financial impact of its investments.
Based on a backtest of the strategy from January 2010 to June 2018, Schroders estimated that its new fund would generate approximately £2.50 of net external societal benefits for every £100 of company sales, through supporting companies paying fair wages and not avoiding taxes, for example.
“SMFE combines a scientific approach to ESG measurement with an equally scientific approach to factor investing,” Lester said. “We aim to put the best thinking in both ESG and factor investing to work for our investors, both now and through a measured but continuous process of improvement in the future.”
Lester said that the fund rebalanced every month to take full advantage of different factors. Schroders would continue to add data points to the SustainEx framework to develop the process, he added.
The UK version of the fund has an estimated ongoing charges figure of 0.24%, keeping it within the country’s auto-enrolment DC charge cap of 0.75%. A global version of the strategy is slated for launch in December.
Major UK DC funds including NEST and HSBC have adopted default strategies with sustainable investing tilts in recent years.
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