Event Voice: Your Questions Answered by BMO Global Asset Management at the Investment Week Sustainable & ESG Market Briefing
Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
Launched in 2015, the BMO Sustainable Opportunities Global Equity fund aims to provide capital growth while driving positive change by focusing on companies whose products and services are directly alleviating long-term sustainability challenges.
While we are encouraged by the rising interest in ESG investing, there must be more scrutiny on funds purporting to invest in this way. As with all our ESG-focused offerings, we orientate investment decisions around our Avoid, Invest, Improve philosophy: excluding companies perceived harmful to people and the planet; investing in market leaders within several megatrends; and engaging companies to improve management of ESG issues.
Our process for assessing the sustainability A.I.M. of products and services enables us to critically analyse the true sustainability of company: looking at the additionality and innovation provided to the market, the intentionality with which the company is prioritising these issues, and the materiality that ESG opportunities mean for the business.
To monitor and measure the impact of our investments, we publish an impact report annually to provide analysis on how the products and services provided by the companies within the portfolio align with the sustainable development goals (SDGs) - both positively and negatively; key portfolio impact metrics on carbon, water and gender; and a summary of our engagement, and how this aligned with the SDGs.
Our 16-person Global Equities team is responsible for day-to-day stock picking and portfolio management. They work in tandem with our award-winning Responsible Investment team - 21 sustainability experts with 275 years' experience - to ensure ESG-related factors are hardwired into our analysis and engagement.
How have you been trying to weather the storm caused by the Covid-19 pandemic and what could be the longer-term implications for your strategy?
No one could have predicted the impact borne on society and the economy by Covid-19. That said, our natural long-term bias towards quality businesses with strong competitive positioning, strong balance sheets and high visibility of earnings stood the portfolio in good stead through 2020.
We believe that potential outperformance over the long term is to be found not simply in companies addressing sustainability challenges, but from those high-quality businesses addressing sustainability challenges: those with strong competitive positioning are able to consistently capitalise upon those opportunities, rather than see their market leadership dissipate through increasing competition. Our focus on quality helped drive relative outperformance last year, as these companies garnered increased investor attention as market participants anchored to those best positioned to weather the uncertainty.
Looking forward, whilst in the short term we are witnessing a value rotation as investors look to profit from the ‘reopen' trade, we remain focused on the longer term. Covid-19 has brought sustainability challenges to the fore - not just environmental, but societal too; from physical health, labour standards, and mental wellbeing. It will take time for these challenges to be addressed, but over the long term, the opportunities should create a robust risk/reward payoff.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
Ageing demographics are straining health resources, while rising urbanisation and increasingly cramped living quarters are creating an opportunity for increased frequency and impact of communicable diseases. We must adapt to these changes and mitigate further exacerbations of their impact.
Adaptation starts with diagnoses. Age-related illnesses and obesity rates are both rising. We must improve diagnoses to catch diseases earlier, thereby ensuring less invasive and more effect treatment. Illumina, market leader in next generation sequencing of the human genome, is enabling this. Costs associated with gene sequencing have fallen significantly, improving access to preventative diagnoses. As this market grows, Illumina should be a strong beneficiary. Similarly, we need better treatments; a shift to value-based-care will help that. Healthcare insurer Humana are prioritising this and looks well placed for the evolution of this industry.
Finally, we must mitigate the pressures on healthcare systems. Better lifestyles and nutrition are key. Kerry Group are at the forefront of delivering improved food and drink formulations to FMCGs to improve both taste and nutrition profiles of food; Shimano, a market leader in bicycle gears and brakes, are enabling healthier lifestyles. As these lifestyle improvements broaden, these sorts of businesses stand to see long-term structural growth tailwinds.
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Risk disclaimer:
The value of investments and any income from them can go down as well as up and investors may not get back the original amount invested. Past performance should not be seen as an indication of future performance. All fund performance data is net of management fees. Screening out sectors or companies may result in less diversification and hence more volatility in investment values.
The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds.
