Environmental and social considerations play a role not only in the selection of investment managers, strategies and funds, but also in the development of RS Group’s long-term oriented strategic asset allocation. It is worth highlighting the following sustainability considerations in our strategy:
Tilt Towards Listed and Private Equity / Debt
The strategic allocation is tilted towards listed equities and private equity / debt where an investor like RS Group and its managers can act as long-term stewards, as opposed to investing in derivative markets or ‘black box’ strategies for short-term speculative gains. The better long-term alignment of investor goals (including impact goals) and manager incentives that is possible in private equity / debt investments is reflected in RS Group’s substantial allocation to this asset class.
Actively Managed Strategies
RS Group has also taken the decision to invest all of its assets through actively managed strategies on the basis of sound fundamental research. We are convinced that this active approach is the best conduit for the consideration of sustainable and impact criteria and an important contribution toward creating a more resilient and accountable financial system. Our responsibility as a fiduciary of financial assets is also reflected in our choice of intermediaries with a long-term mindset, upholding high governance standards, applying active ownership policies, and not investing in opaque or speculative instruments.
Long-term View on the Importance of Emerging and Frontier Markets
Some sustainable investors shy away from emerging and frontier markets because of environmental, social and governance concerns. RS Group has taken a different view: it is exactly in these regions that investors can contribute most in terms of allocating capital to sectors and companies that support sustainable development and where active ownership / engagement with companies is most needed. This strategic decision is reflected in a RS Group allocation to emerging markets of 19% in listed equity (as opposed to 7% of the benchmark MSCI All Country World Index (MSCI ACWI)), and 24% in private equity (as opposed to nil by traditional private equity investors).
Below are additional characteristics of our portfolio in terms of investment style and sector / geographical focus:
Overweight Sector Focus in Industrials and Technology; Underweight in Energy
Due to our decision to divest from fossil fuel exploration and production companies, our portfolio has almost negligible exposure to the Energy sector compared to the benchmark. On the other hand, Industrials and Technology sectors are strongly overweight because these sectors include companies providing solutions to environmental and social challenges that we actively target. Healthcare, another important sector in the context of a sustainable investment strategy, is also overweight. Notable is the underweight of financial services, a sector that sustainable investors have traditionally viewed in a very critical way due to its poor corporate governance performance (see figure below).
Tilt Towards Mid-cap Growth Companies
Within the listed equity portfolio, there is a tilt towards mid-sized companies with more growth orientation compared to the benchmark, which is due to the impactoriented mission of the Group’s investments (see figure below).