BELEGEGGEN & PORTEFEUILLE - FOR PROFESSIONAL INVESTORS

Creating a sustainable core

23/jan/2017
By Deborah Winshel, Katharina Schwaiger

Passive investing has long dominated core equity portfolios, with indices available to implement a range of investment strategies. However, the options have been far fewer for investors to express their environment, social and governance (ESG) views. Furthermore, in many instances it involves accepting a higher tracking error than investors are comfortable with.

As ESG investing evolves, so too have the passive choices available to support it. The latest applies a risk-based optimisation process to control a portfolio’s ESG ratings versus its tracking error. This could be a plus for those investors who don’t want to take too much active risk, relative to their investment policy benchmarks. Indeed our research results for core equity portfolios indicate that much of the ESG improvements can be gained with relatively minimal tracking error, with further marginal benefits decreasing as more risk is taken as the below figure illustrates.

Source:MSCI,BlackRock calculations as of December 2016.

Investors can also customise how they apply ESG parameters, including a focus on carbon reduction or a specific region. Of course not all investment indices can be optimised for the same ESG score if targeting a similar tracking error, due to the differences in ESG characteristics of the underlying assets. Nevertheless, we believe these improvements can persist over time, making ESG optimisation a worthwhile consideration for long-term investors.

Global Head of Impact Investing.
Member of the ETF and index investment product innovation group

Op zoek naar meer onderzoek en insights?

BEKIJK ONDERWERPEN

This material is for distribution to Professional Clients (as defined by the FCA Rules) and should not be relied upon by any other persons.
Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited.
Sources: Bloomberg unless otherwise specified.
Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.
The opinions expressed in this paper may change as subsequent conditions vary. The information and opinions contained in this paper are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents.
This paper may contain "forward-looking" information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this paper is at the sole discretion of the reader.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.
© 2017 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.