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Measuring the impact of investments remains a main challenge for sustainable finance professionals and, together with Climate Change, an overarching theme at TBLI. Sixteen related workshops offer ...

Measuring the impact of investments remains a main challenge for sustainable finance professionals and, together with Climate Change, an overarching theme at TBLI. Sixteen related workshops offer debate on ESG and Impact Investing trends, private equity, portfolio strategy, food production, emerging markets, sustainable energy or philanthropy investing.

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Henry Shilling Henry Shilling Presentation Transcript

  • TBLI Conference Europe 2013 Sustainable and Responsible Investing in U.S. Fixed Income Mutual Funds/ETFs: Opportunities for Improvement and Product Development in Sector Poised for Growth November 14-15, 2013 November 14, 2013
  • Observations » Limited attractive offerings available to fixed income investors interested in sustainable and responsible investment strategies* via registered mutual funds or ETFs in the U.S. » 23 funds and $13.1 billion in assets  Limited offerings  Higher expense ratios  Lagging total return performance. » While there are additional challenges associated with applying ESG to fixed income investing, opportunities for improvement and product development exist to take advantage of a market segment that’s poised for growth. *Investment approach that takes into account environmental, social and governance (ESG) factors ESG 2
  • Fixed income ESG funds strategies » No. of Funds Total Net Assets ($ millions) Exclusionary practices 15 9,395.5 Thematic investing: CRA integration 3 2,060.2 ESG Integration + Exclusionary practices 4 1,612.4 ESG Integration 1 68.4 --Totals 23 13,136.5 SRI Strategy Total net assets as of 9/30/2013; Sources: Morningstar and Moody’s analysis. Exclusionary practices typically include alcohol, tobacco, military weapons, firearms, nuclear power and gambling. ESG 3
  • Fixed income ESG funds strategies ESG 4
  • Mutual fund assets vs. ESG funds assets Fixed Income Funds Equity/Balanced Funds Total net assets as of 9/30/2013 in $ billions; Sources: Morningstar, ICI and Moody’s analysis ESG 5
  • Fixed income ESG funds management firms # Funds Total Net Assets ($ millions) Calvert Investment Management, Inc. 9 5,013.7 PIMCO 2 4,052.8 Community Capital Management, Inc. 1 1,540.4 Pax World Management LLC 1 593.0 RBC Global Asset Management (U.S) Inc. Everence Capital Management 1 1 519.8 344.9 SEI Investment Management Corp. 1 300.1 Parnassus Investments 1 186.2 Schwartz Investment Council, Inc. Capstone Asset Management 1 1 140.8 138.3 Seix Investment Advisors 1 124.9 Barrow, Hanley, Mewhinney & Strauss 2 113.2 Teachers Advisors, Inc 1 68.4 --Totals 23 13,136.5 Investment Manager ESG 6
  • Average ESG portfolio credit quality and duration Ultra Short/Short Intermediate Long Duration Duration Duration High Grade/Gov’t Medium Grade Low Grade $1,715.8/ 14% $2,816.3/ 23% $6,804.1/ 55% $406/ 3% $734/ 6% Note: Excluding 2 funds due to use of leverage and investments in stocks; may not add due to rounding ESG 7
  • Fixed income ESG funds average expense ratios ESG 8
  • Fixed income ESG funds average turnover rates ESG 9
  • Fixed income ESG funds total return performance ESG 10
  • Fixed income ESG funds implementation challenges » Limited evidence of positive performance impact  Potential positive impact on cost of funding. » Limited evidence of risk mitigation or potential for limiting adverse impact on credit. » Challenges of applying to fixed income securities or portfolios:  Company, issuer or instrument  Tenor  Security type: Structured or derivative instruments. » Availability and quality of ESG data for fixed income securities: Corporate, sovereign and tax-free. » Supply of available securities that meet ESG criteria. » Limited ability to engage in shareholder activism. ESG 11
  • Conclusions » ESG fixed income product offerings for retail and institutional investors are limited at a time when more investors are expected to seek to apply an ESG approach to their fixed income portfolios. » Current offerings may be hindered due to:  Lack of scale  Higher than average fees and total return underperformance. » While there are challenges associated with applying ESG to fixed income investing, opportunities for improvement and product development exist to take advantage of a market segment that’s poised for growth. ESG 12
  • Contact information Henry Shilling Senior Vice President Social Performance Group Moody's Corporation henry.shilling@moodys.com (212) 553-1948 ESG 13
  • © 2013 Moody’s Analytics, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding, or selling. Any publication into Australia of this document is pursuant to the Australian Financial Services License of Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569. This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. ESG 14