Trend Hunter Series
How to build sustainable investment portfolios Sustainable investing is no longer niche with an increasing number of investors calling for their investments to have a positive impact on society and to help solve the challenges facing the world. In this presentation, Pendal, Lonsec and DNR capital discuss what to look for when constructing your sustainable portfolio, including an examination of external benchmarks and how to align your investments with your values and beliefs.
02 September 2021 This document is for general use. Modification of content is prohibited unless you have Netwealth’s express prior written consent.
Before we get started
The views expressed in this presentation are those of the author and presenter and do not necessarily reflect those of Netwealth Investments Limited’s. It is a general summary only. It is not advice nor an endorsement of any product or service. Netwealth Investments Limited (Netwealth) (ABN 85 090 569 109, AFS Licence No. 230975) is a provider of investment products and services and information contained in this presentation is of a general nature which does not take into account yours or your client’s individual objectives, financial situation or needs. Any person considering a financial product or service from Netwealth (or its related parties) should obtain the relevant disclosure document at www.netwealth.com.au and consider consulting a financial adviser before making a decision and before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth (including its related parties) product. Whilst reasonable care has been taken in the preparation of this presentation using sources believed to be reliable and accurate, to the maximum extent permitted by law, Netwealth and its related parties, employees and directors are not responsible for, and will not accept liability in connection with any loss or damage suffered by any person arising from reliance on this information. This presentation is for general use. Modification of content is prohibited unless you have Netwealth’s express prior written consent.
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Housekeeping
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Showcasing managed accounts
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Professionally managed
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Meet today’s Trend Hunters
Deanne Baker
Portfolio Manager, Multi Asset
Lonsec
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Jeremy Dean
Head of Regnan & Responsible Investment Distribution
Pendal
Natasha McKean
ESG Investment Analyst
DNR Capital
Lonsec Deanne Baker
Portfolio Manager, Multi Asset
Lonsec
Sustainable Investing Netwealth Trend Hunters Webinar
September 2021| Lonsec Investment Solutions
Disclaimer Important Notice: This presentation is given by representatives of Lonsec Investment Solutions Pty Ltd ACN: 608 837 583, a Corporate Authorised Representative (CAR number: 1236821) (LIS) of Lonsec Research Pty Ltd ABN: 11 151 658 561 AFSL: 421 445 (Lonsec Research) to wholesale clients only (within the meaning of section 761G of the Corporations Act 2001 (Cth)). By attending this presentation you are representing that you are a wholesale client. This presentation has been prepared without taking account your objectives, financial situation or needs. Before making any investment decisions you should read the relevant product disclosure statement and obtain advice from an appropriate financial adviser. LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Fiscal Holdings Pty Ltd ACN: 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this presentation. Disclosure at the date of publication: Lonsec Research receives a fee from the relevant fund manager or product issuers for researching financial products (using objective criteria) which may be referred to in this presentation. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services. Lonsec Research receives fees for providing investment consulting advice approved product lists and other advice, to clients. LIS receives a fee for providing the model portfolios to financial services professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research may hold any financial product(s) referred to in this presentation. Lonsec Research’s representatives and/or their associates may hold any financial product(s) referred to in this presentation, but details of these holdings are not known to the analyst(s). Warnings: Past performance is not a reliable indicator of future performance. Disclaimer: This presentation is not intended for use by a retail client or a member of the public and should not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this presentation, which is drawn from public information not verified by LIS. Financial conclusions, ratings and advice are reasonably held at the time of completion (refer to the date of this presentation) but subject to change without notice. LIS assumes no obligation to update this presentation following publication. Except for any liability which cannot be excluded, LIS and Lonsec, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this presentation or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. Copyright © 2021 Lonsec Investment Solutions Pty Ltd ACN: 608 837 583
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Lonsec’s Sustainable Philosophy We believe that investing responsibly can not only deliver sustainable, long-term value for clients but that it can also have a positive impact on society and the planet.
Sustainable Investing
Having a positive impact without giving up returns
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Historical evidence shows investing responsibly can not only keep pace with peers, but can in fact outperform
• Identify structural growth winners
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‘Decarbonisation’ mega theme
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Need to transition the global economy away from fossil fuels to meet targets set out in Paris agreement
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Regulatory/Policy tailwinds – Net Zero targets, TFCD, EV incentives
Manage Risk •
Avoid transition and physical risks of climate change
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Avoid controversies and maintain a ‘social licence’ to operate
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Increased stakeholder demands Source: Pengana Wheb
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Lonsec Sustainable Managed Portfolios A whole of portfolio solution
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Multi-asset solution incorporating ESG and Sustainability principles across each of the major asset classes
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Aims not only to outperform the benchmark, but to also make a positive contribution to the key environmental and social challenges facing society as measured by the United Nations Sustainable Development Goals (UN SDGs)
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Lonsec Sustainable Managed Portfolios Make a positive contribution while limiting exposure to controversial industries Limit exposure to companies fundamentally misaligned with the UN SDGs
Coal
Gambling
Weapons
Alcohol
Nuclear
Tobacco
Adult
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Investment Selection Process Quality Filter •
Rated ‘Recommended’ or above by Lonsec Research
Blending & Risk Control Manager Selection Committee Approval
ESG Integration • How well does a manager integrate ESG into
their investment decision making process?
Sustainable Seek to do good and avoid harm • A range of approaches; impact, best in class, exclusion based •
Australian Ethical Impax Pengana Wheb Atlas Infrastructure Alphinity Ausbil PIMCO Pendal BetaShares
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Investing sustainably across asset classes • Wind turbines • Battery technology • Health Care
• Renewable energy utilities • Water utilities • EV charging
• Energy efficient buildings • Social housing • Aged care
Equities
Listed Property
Listed Infrastructure
Fixed Income • Green bonds • Social bonds • Sustainable bonds Page 15
Thank you
Pendal Jeremy Dean
Head of Regnan and Responsible Investment Distribution
Pendal
Brought to you by PENDAL
Regnan Global Equity Impact Solutions Fund Sept 2021
Our Responsible Investing journey Commitment to RI has a long and proud heritage
1984
2000
2007
2014
2017
Pendal Sustainable Balanced Fund (originally BT Australia Charities Trust) launched1
Became a member of Responsible Investment Association Australasia (RIAA)2
Pendal Australia became PRI Signatory2
Awarded our first ‘low-carbon’ mandate
Pendal Sustainable Funds received RIAA certification
1989 Pendal Sustainable Conservative Fund1
2001 Pendal Ethical Share Fund and Pendal Australian Sustainable Share Fund launched1
Co-founded Regnan – Governance Research & Engagement2
2015 Group CEO appointed to the Banking & Finance Oath
2009 Started managing our first Sustainable Australian fixed income strategy
2005
Founding member of the Investor Group on Climate Change (IGCC)2
Thermal coal exclusion implemented across Pendal Sustainable Funds
2016 Launched Pendal sustainable funds: - Australian Fixed Interest - International Fixed Interest - International Shares
2018 Launched Pendal Sustainable Future Australian Share Portfolio SMA (ex fossil fuels)
Appointed Head of Responsible Investments
2010 2007 2001
1996 Monash Centre for Environmental Management (MCEM) formed
Westpac (and later BT) Governance Advisory Service (BT GAS) launched2
2000 MCEM became Monash Sustainability Enterprises (MSE)
BT GAS evolved into Regnan - Governance Research & Engagement Pendal established as a founding part-owner and client2
MSE merged with Regnan, now operating in Sydney and Melbourne
2015 2019 Pendal increased Regnan wholly ownership of owned by Regnan to 50% Pendal
2020 Regnan and Pendal collaborated to launch first impact fund, the Regnan Credit Impact Trust Regnan Global Equity Impact Solutions Fund was launched
1 The
fund was launched when Pendal was part of the BT Financial Group. Pendal Fund Services Limited (previously known as BT Investment Management (Fund Services) Limited) became the responsible entity of this fund in 2007. 2 When Pendal was part of the BT Financial Group.
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Why Impact and Why Now The most powerful group of all — consumers
Institutional Investor demand
Proactive Governments
Regulation
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The UN SDGs identify problems and challenges that need solutions
The plastic problem
By 2050 there will be more plastic than fish in the sea
?
Socially Responsible Investing Exclude the worst
Source: Source: Ellen MacArthur Foundation
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Environmental, Social and Governance Reduce risks
IMPACT solution Identify solutions
[] []
The Solution Reverse vending machines for beverage container recycling
Solving the problem drives the investment opportunity TAM* growth1
11.5% TAM* size
TAM* size
$1,026m
$310m 2019
2030
Market potential *Total Addressable Market (TAM) is an estimate of the revenue opportunity available for a product or service, derived from estimates from market research providers. TAM estimates obtained from market research providers and the team’s estimate of TAM may differ.
SDG Taxonomy SDG
SDG target
14. Conserve and sustainably use the oceans, seas and marine resources for sustainable development
14.1 By 2025, prevent and significantly reduce marine pollution of all kinds, in particular from land-based activities, including marine debris and nutrient pollution
Directly investable
Solution area
Yes
Reverse vending machines
Market potential TAM* size $bn (2019) $310m
TAM* size $bn (2030) $1,026m
Life cycle stage TAM* growth 11.5%
Growth
Theory of change Issue
Solution
The world's waste pile is set to increase by 70% on current levels (World Bank, 2018). Plastic makes up 12% of all solid waste in 2016 (World Bank, 2018), but only 14% is currently collected for recycling (Ellen MacArthur Foundation). The Ellen MacArthur Foundation estimates there will be more plastic in the sea than fish by 2050.
Reverse vending machines substantially increase recycling rates of beverage containers. Return deposit schemes in which reverse vending machines are deployed have been effective in driving recycling rates in excess of 90% in countries where they have been adopted, up from c. 34% in Lithuania for example (Tomra CMD Presentation 2018).
Impact risks External risk: Impact potential dependent on adoption of return deposit schemes in new geographies.
Efficiency risks: Some recycling processes have a high environmental impact, especially when factoring in energy needs, which may be less attractive than using virgin materials in some cases.
Execution risks: Disposal of non-recyclable materials needs to be handled carefully in order to not generate pollution.
*Total Addressable Market (TAM) is an estimate of the revenue opportunity available for a product or service, derived from estimates from market research providers. TAM estimates obtained from market research providers and the team’s estimate of TAM may differ.
Investment philosophy We aim to outperform the broad global equity market:
Identify changing systems
Uncover emerging growth opportunities
Invest in companies
with our taxonomy, which helps find new solutions to replace the old systems of growth
that meet a structural need and are positioned for demand, revenue, and earnings growth
that positively impact people and planet, capturing opportunities that market inefficiencies miss
A growing opportunity set 8 investment themes and growing New impact solutions keep emerging from taxonomy Style-diversified portfolio of industry leaders within emerging industries
Classifying investable solutions into investment themes Systemic research of impact opportunities: Style-diversified portfolio of innovative pack-leading companies within emerging industries
22.9%
Improved life expectancy and quality
9.0%
13.4%
Preservation of and access to water
2.6%
Financial Services for underserved populations
Transforming the energy system to power a low-carbon economy
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SDG targets addressed
40
18.6%
Resource efficiency, reusability and recyclability
unique solutions
6.7%
7.7%
Access to quality education
Low carbon transportation
2.0%
Sustainable food supply and productive farmlands Source: Regnan / JOHCM as at 31st July 2021. Note: Thematic exposure attribution to eight impact themes based on estimates of company revenues or other relevant metrics. Cash position: 1.1%. Neutral impact (13.2%) is estimated where revenues not directly tied to any theme. Negative impact (2.8%) estimated where revenues may be detrimental to UN Sustainable Development Goals (SDG).
Regnan Global Equity Impact Solutions: An integrated approach Conviction defines our approach to integrating impact and investment analysis, identifying growth opportunities, and delivering differentiated results
A growing set of investment opportunities driven by the growing need for impact solutions, systematically identified by our SDG Taxonomy
Expertise at every stage of the investment process, including engagement and impact analysis and access to proprietary inhouse sustainability research from Regnan
A track record that shows the combination of our expertise and robust process generates sustainable results
The impact case is the investment case
New investments delivering impact
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Pendal Group
Pendal Australian-based independent global active investment manager Active equities | Active fixed income | Listed property Cash | Multi-asset | Responsible investment
J O Hambro Capital Management UK-headquartered performanceled active investment manager Active equities | Multi-asset | Credit
PENDAL GROUP ASX: PDL
Regnan Responsible investment management and services from an ESG pioneer Equities and credit impact investment strategies; ESG engagement, advisory and research services
Disclaimer This presentation has been prepared by Pendal Funds Services Limited (Pendal) ABN 13 161 249 332, AFSL No 431426 and the information contained within is current as at the date of this presentation. It is not to be published, or otherwise made available to any person other than the party to whom it is provided. Pendal is the responsible entity and issuer of units in the funds mentioned. A product disclosure statement (PDS) is available for each of the funds and can be obtained by calling 1800 813 886 or visiting www.pendalgroup.com. You should obtain and consider the PDS before deciding whether to acquire, continue to hold or dispose of units in the funds. An investment in any of the funds referred to in this presentation is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This presentation is for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their or their clients’ individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information in this presentation may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information in this presentation is complete and correct, to the maximum extent permitted by law neither Pendal nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. For more information, please call our Contact Centre on 1800 813 886 8:00am to 6:00pm (Sydney time) or visit our website www.pendalgroup.com
www.regnan.com
DNR Capital Natasha McKean
ESG Investment Analyst
DNR Capital
This document is for general use. Modification of content is prohibited unless you have Netwealth’s express prior written consent.
How to build sustainable investment portfolios
Natasha McKean ESG Investment Analyst This document is intended for financial advisers and researchers only. DNR Capital does not authorise distribution to retail investors.
© DNR Capital 2021
Business background
Snapshot
Difference
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Founded in 2001
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Employee owned
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Concentrated portfolios with high conviction ideas
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Targeted and efficient process, focused on quality
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Strongly aligned and highly accountable
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History of strong transparency
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Winner - Money Management SMA Manager of the Year 2020
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IMAP Managed Accounts Awards - Australian Equities 2019 finalist
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IMAP Managed Accounts Awards - Australian Equities 2018 finalist
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Winner - Money Management/Lonsec SMA Portfolio Award 2017
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Money Management/Lonsec SMA Manager of the Year 2016 finalist
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Money Management/Lonsec SMA Manager of the Year 2015 finalist
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Golden Bull Award finalist in 2014 Australian Fund Manager Awards
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Winner - Best SMA Portfolio 2014 by Lonsec
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Golden Calf Award finalist in 2011 Australian Fund Manager Awards
Clearly positioned basket of Australian equity portfolios As at 31 July 2021
High Conviction Strategy
Socially Responsible Strategy
Income Strategy
Emerging Companies Strategy
Large cap
Mid cap bias
Large cap
Small cap
Experience
Est. Oct 2002
Est. June 2006
Est. Dec 2007
Est. Dec 2017
Focus
Capital growth
Socially responsible
Growing, tax effective income
Capital growth from smaller companies
Results
3.2% p.a. alpha since inception
3.6% p.a. alpha since inception
2.1% p.a. alpha since inception
17.1% p.a. alpha since inception
Quality stocks at attractive prices (style neutral) 18+ years of outperformance Past performance is not an indication of future performance. No allowance has been made for taxation and fees are not taken into account.
How to build a sustainable investment portfolio Quality companies: Synonymous with ESG • Strong management and governance • Long-term sustainable earnings • Lower risk • Strong capital allocation • Shareholder value creation
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Assessing quality companies 5 point Quality Web Industry Structure
Management
Balance Sheet Strength
Environmental • Energy Intensity • Water Intensity • Land & Materials Intensity • Waste & Pollution • Susceptibility to Climate Change Social • Human Capital Management • Modern Slavery • Product Integrity • Data Privacy & Security • Community Impact Governance • Shareholder Focus • Management Quality • Board Quality • Business Strategy & Risk • Business Culture
Earnings Strength
Tying it all together: Integrating ESG in investment-decision making
DNR Capital expertise Long term view ESG risks
In-house, well resourced team ESG integrated into earnings forecasts and valuation ESG scenario analysis
Portfolio construction
SRI Committee
A seat at the table: Comprehensive engagement program DNR Capital’s company engagement delivers long-term strategic benefit. • Material shareholder • Strong relationships with company management • Well positioned to influence change
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Sustainable portfolios: Delivering investment returns Why ESG Integration improves investment returns • Quality companies make better business decisions • ESG issue are financially material • ESG factors help predict future operating and regulatory environment • ESG integration challenges analyst prejudices • Avoid long tail risk
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DNR Capital: Responsible investment solutions Socially Responsible Investment Strategy overview SRI strategy
Investors seeking strong returns from sustainable investments without involvement in gaming, pornography, armaments and tobacco.
Investment objective
Outperform S&P/ASX200 Accumulation Index by 4%p.a. (before fees) over a rolling 3 year period.
Investment horizon
5 year time horizon whilst taking advantage of short-term market inefficiencies.
Concentrated portfolio
15-30 highest conviction positions.
RIAA certification
April 2013
Style
Neutral
Target market cap bias
Mid cap
Active share guide
>60%
Socially Responsible Investment Strategy Key investment themes Opportunity
Sustainable products and circular economy
Education
Medical solutions, health and aged care
Essential infrastructure, build to rent and urban regeneration
Example Portfolio Holdings
Disclaimer
IMPORTANT NOTE: This document has been prepared by DNR Capital Pty Ltd, AFS Representative– 294844 of DNR AFSL Pty Ltd ABN 39 118 946 400, AFSL 301658. It is general information only and is not intended to be a recommendation to invest in any product or financial service mentioned above. Whilst DNR Capital has used its best endeavours to ensure the information within this document is accurate it cannot be relied upon in any way and you must make your own enquiries concerning the accuracy of the information within. Past performance is no guarantee of future performance. The information in this document has been prepared for general purposes and does not take into account the investment objectives, financial situation or needs of any particular person nor does the information constitute investment advice. The portfolio data (including performance data) in this document relates to the DNR Capital model portfolio. The portfolio data in this model portfolio through a Portfolio Service may be different to the data in this document as a result of different policies and procedures at different Portfolio Service operators. Before making any financial investment decisions you should obtain legal and taxation advice appropriate to your particular needs. Investment in a DNR Capital individually managed account can only be made on completion of all the required documentation. If you invest in the DNR Capital model portfolio via a service such as investor directed portfolio service, managed account service of separately managed account (“Portfolio Service”), you can obtain information from the Portfolio Service operator. If you invest via a Portfolio Service, different terms may apply to your investment. You should read the disclosure document for that Portfolio Service and consider your circumstances prior to investing.
Questions and answers
Thank you Trend Hunters Series – Coming up • Tue 31st Aug at 1pm - Outside the NASDAQ: Where to next for technology stocks? • Wed 1st Sep at 1pm - International investing: Your guide to emerging markets and the new world economy • Thu 2nd Sep at 1pm - How to build sustainable investment portfolios
Portfolio Construction Podcast In this podcast series, our investment research team pick the brains of key wealth management professionals to uncover unique insights on the investment areas they are most passionate about.