Vector's take on sustainable finance

17 Mar 2021

Dear investors,

New legislation (SFDR) stemming from the EU Action Plan on sustainable finance requires asset managers to inform their investors on how they integrate sustainability risks in their investment decision-process.

The legislation provides guidance for all financial market participants, ranging from “dark green” funds that explicitly have ESG in their investment objective to funds that do not consider the adverse impact of investment decisions on sustainability factors at all. Vector is positioned somewhere in the middle as we take ESG into account in the investment and risk-process, but do not explicitly manage our funds with an ESG approach in mind, as we do not want to limit our investment universe too much. The MSCI World SRI Index, for instance, only contains about 1/4th of the stocks of its parent index.

The incorporation of ESG in our investment procedures is not new, but has been in place for a couple of years now. And for good reasons, internal as well as external research has shown that above average ESG performance leads to better operational performance and lower costs of capital, which in turn leads to higher valuations.

In practice, companies in our investment universe are ranked on an ESG-Score. Our data vendor, Refinitiv, employs over 150 content analysts to collect and screen more than 450 Environmental, Social and Governance characteristics, is well equipped for this task. The scale of their ESG department ensures that the signals we receive are broadly available for the constituents of our investment universe, as well as updated in a timely manner.

So, in conclusion, while - ceteris paribus - we will always prefer to select those companies that champion ESG we won’t do this at the expense of all other factors within Vector Navigator and Flexible. The sole exception to this rule is when the qualitative ESG- risk analysis would point to significant ESG-risks (controversies, etc.).

Vector Navigator recorded a return of 2.28% during the month, a result that was in line with its reference benchmark. Vector Flexible returned 1.05% in February, which is quite a bit better than its bond-heavy Morningstar benchmark (+0.52%). As Flexible uses future contracts to hedge its market exposure it clearly did not suffer as much from the increase in interest rates that we’ve seen as of late.

Best regards,

Werner, Thierry and Nils