FUNDS WATCHLIST
ISSUE 2 / JULY 2021
The four-day event, breakout events, keynote speeches, panels and debates only served to highlight the skyrocket in demand for sustainable products – and not simply funds that have crowbarred ‘green’ or ‘ethical’ into their titles, but vehicles that hold sustainability and impact investing within their DNA.
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In fact, according to research discussed at the event by Morningstar’s director of sustainability research Hortense Bioy, six of the ten best-selling funds in Europe in Q4 2020 and Q1 2021 were related to climate change, attracting more than €9bn in net inflows.
Speaking at the festival, Bioy said: "Covid-19 has accelerated investor interest in sustainability issues, and it has forced many people and companies to think about sustainability issues and climate change in particular. Another driver is the prospect of more regulation, but also the fact that many investors have come to realise and accept that ESG funds offer comparable, and in some cases even better performance than conventional funds."
In partnership with:
Sustainable investing, ESG in the US and food for thought
Lauren Mason reviews the market moves seen over the last quarter
AllianceBernstein Sustainable US Equity Strategy
Finding better stocks for a better world
Allianz Food Security
Investing for real-world change
Meanwhile, Morningstar's research shows that European sustainable funds saw record high inflows in Q1 of €120bn, comprising 51% of overall fund flows during the quarter.
Indeed, it appears that the days of having to choose between ethical or impact investing and outperformance are firmly in the past, with some of the best-performing funds over the last year proudly badging themselves as having an ESG-centric process. However, the industry is still having to contend with headwinds in its bid to ramp up its focus on sustainability and impact investing.
ver recent weeks, the Investment Week team has been more focused than ever on sustainability within the world of investing, having spent a significant amount of time planning and launching our parent company Incisive Media’s inaugural Sustainability Investment Festival.
The Pictet-Nutrition fund
Investing in the future of food: better for you, better for the planet – food after Covid
Association's definition of impact investing, 38% said this gave them new information about the term.
A
This knowledge gap may in part lie with the communication from asset managers themselves, with Peregrine Communications’ second annual ESG report finding that despite growth in supply and demand for ESG content increasing by 149.6% and 141.5% over the last 12 months, only a handful of asset managers “successfully communicated their contribution towards Sustainability and ESG”.
Style rotations, dividend dashboards and the future prospects for China
Allianz UK Listed Equity Income Fund
Compelling opportunity in UK value today
PineBridge Asia Ex Japan Equity Fund
Active investing in a structurally dynamic region
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Fund managers finding appropriate holdings for the portfolios is far from a simple task either, with research from the Science Based Targets initiative (SBTi) revealing that not a single one of the G7's leading stock indices are currently aligned with a 1.5°C or 2°C pathway.
According to data from Intercontinental Exchange, approximately 75% of European companies are likely to have identified the UN’s Sustainable Development Goal on climate action as a business objective, compared to just 25% in the US. Moreover, ICE data found that 58% of European companies had explicitly identified the UN SDG on Gender Equality as an objective, compared to 21% of American companies.
ESG in the US
One market area that often gets overlooked when it comes to ESG and sustainable investing is the US, with European and UK offerings typically taking the lead in offering green products relative to their American peers. The gap has become particularly prevalent since the EU’s introduction of Sustainable Finance Disclosure Regulation earlier this year, which uses a taxonomy that has measurable criteria as to what is and isn’t sustainable.
Lauren Mason, editor, Investment Week, considers some of the most pertinent ESG themes investors may wish to consider over the long term, and how best to address some of the sustainability challenges facing fund managers
Back to hub
75% of European companies are likely to have identified the UN’s Sustainable Development Goal on climate action as a business objective, compared to just 25% in the US
21%
Expected growth in FTSE 100 dividend payments in 2021
"Europe is just way ahead on all things ESG – the continent is leading the globe in these matters and is supported by the politicians – much more so than in the US where, until recently, companies had to tackle ESG with no political support whatsoever,” Darius McDermott, managing director of Chelsea Financial Services, said. “We expect the gap to close over time under US President Joe Biden."
Smart IPOs
Smart investors have cottoned onto this structural trend, with plant-based meat alternative manufacturer Beyond Meat soaring by 163% within the first 24 hours of its 2019 IPO – making it the most significant flotation in the US in almost 20 years.
Just last month, Biden announced a $2trn plan to overhaul and upgrade the US’s infrastructure, a bulk of which will involve shifting towards cleaner, greener energy sources, as well as promoting economic racial equality.
More recently, Swedish oat milk giant Oatly secured $2.1bn in its May IPO this year, and subsequently already has plans to expand its retail channels in China. Now, with plant-based product manufacturer Impossible Foods mulling an IPO with a valuation of up to $10bn, and other companies in the space now publically listed including the Very Good Food Company, Else Nutrition and Tattooed Chef, the market area is arguably ripe for further expansion.
“While [veganism] is a growing trend for consumers, investing in it is far from straight forward”
Food-focused funds
As can be seen in this edition of the Fund Watchlist, the Pictet-Nutrition fund, which had been managed by Mayassa Al Midani and Alex Howson since 2018 and 2020 respectively, invests in companies that improve sustainability, access and quality of food necessary for health and growth.
Some of the Luxembourg-domiciled SICAV’s largest holdings include the likes of agricultural machinery firm Deere & Co, science-based nutrition company Koninklijke DSM and Dublin-based sustainable nutrition firm Kerry Group.
Food for thought: Beyond Meat shares returned 163% in their first full day of trading
As can be seen overleaf, however, there are a number of new funds that have been created with ESG philosophies at their very core, and which are using active management to generate superior long-term returns.
And, given the huge inflows seen across European-focused ESG products, it may be an opportune time to invest in US-focused sustainability funds.
One such example is the AllianceBernstein Sustainable US Equity Strategy, an OEIC version of which was launched in March last year. Readers can find out more about the product overleaf, but its portfolio focuses on three primary sustainability themes: climate, such as cleaner energy and resource efficiency; empowerment, which includes sub-themes such as education and employment service, and financial inclusion; and health, particularly access to quality care and taking a closer look at food security.
ESG and agriculture
In fact, issues surrounding food and ESG are interlinked and have been taking increasing precedence among investors’ portfolios. Biodiversity is a key factor at play here, given that half of all habitable land is used for agriculture, according to a recent study from Our World in Data. This leaves 37% for forests, 11% as shrubs and grassland, 1% as freshwater coverage and the remaining 1% as built-up urban areas.
A recent UN-backed report by the Chatham House thinktank also found that agriculture is the main threat to 86% of the 28,000 species known to be at risk of extinction, with more than 80% of global farmland being used to raise animals, which provide only 18% of calories eaten.
An increasing number of consumers have become aware of the biodiversity problems meat farming poses, with some 14% of the world’s population now classing themselves as vegan or vegetarian, according to data from The Economist.
“While [veganism] is a growing trend for consumers, investing in it is far from straight forward,” Amanda O’Toole, a fund manager at AXA Investment Managers, told Investment Week.
“One of the main problems is a lack of pure play companies in the space. For example, there are only a few vegan-only, direct-to-consumer companies entering the market, and mainstream supermarkets are gaining traction in the sector at the point of sale with their own-brand vegan meals.
“Investors could start with the supermarkets to gain exposure to the veganism trend, but the impact of vegan food sales on supermarkets' bottom lines is currently so minute that to class them as vegan stocks would be a gross exaggeration.”
That is not to say there aren’t funds – including O’Toole’s – that are proactively investing in companies aiding the world’s transition to more ethical, healthier and biodiverse food options.
Amanda O’Toole, fund manager, AXA Investment Managers
Elsewhere – and also shown overleaf – the Allianz Food Security fund aims to invest at least 90% of its assets in firms that offer products that actively contribute to positive environmental and social outcomes across the food supply and production chain. Its largest individual holdings include the likes of US weight loss company Medifast, UK frozen food firm Nomad Foods and agribusiness Bunge Limited.
“A major report on land use and climate change, prepared by 107 scientists for the UN's Intergovernmental Panel on Climate Change (IPCC) stresses that, if we are to meet the Paris Agreement climate targets, we must rapidly change course on land use and farming practices,” ClearlySo’s David Gowenlock told Investment Week recently.
“These changes require consumers to move to diets that produce much lower GHG emissions, a change that necessitates a significant reduction in meat and dairy consumption.
“While we have not seen it yet, such strong pleas from international scientists may see governments adopt policy changes which in some way take into account the mounting environmental and health costs of agriculture as we know it.”
Land Grab: Half of all habitable land is used for agriculture, according to a recent study from Our World in Data
ccording to a recent survey from Research in Finance, only 3% of retail advisers think their clients have a good understanding of impact investing. Indeed, the survey, which also gauged the responses of 210 retail intermediaries, showed that when given the Investment
Funds Watchlist
Introduction
is a good long-term investment. Our sustainable investing strategy aims to achieve these twin goals, and has delivered strong absolute and relative performance in recent years, by focusing on three strategic pillars: thematic allocation, ESG integration and active ownership.
F
Thematic allocation helps provide a clear and coherent definition of sustainability, so investors understand what they’re getting. Our investment process draws on the UN Sustainable Development Goals (UNSDGs) as a roadmap. But since these are a vast set of concepts, we develop a practical plan to translate the UNSDGs into actionable investment ideas.
Sustainable themes provide compelling investment opportunities
Investors are flocking to sustainable equity funds, with inflows breaking records in 2020. But choosing a sustainable portfolio is no easy task. Our strategy offers a differentiated approach for equity investors seeking to foster environmental and social benefits while capturing strong long-term, return potential
The UNSDGs represent an aspirational view of what the world could look like by 2030—and will require massive private sector investment to achieve. By focusing on economic prosperity, environmental sustainability and social inclusion, their 17 goals aim to end all forms of poverty, fight inequalities and address climate change. This agenda is backed by 193 nations and was brought into effect in January 2016.
Investing in sustainable themes offers an important advantage for long-term investors. Sustainable themes aren’t really susceptible to the ups and downs of macroeconomic growth cycles. As a result, we don’t have to forecast short-term twists and turns correctly to create value over time. Rather, we focus on the fundamental strength and long-term appeal of our sustainable themes, which tend to enjoy longer-term tailwinds.
ESG Integration underpins every decision. That means that we consider ESG factors at every step of the investment process as part of our rigorous fundamental research. In our view, ESG factors are an integral part of the value proposition for any company. From climate-change risk to diversity to good governance, ESG factors can materially influence a company’s financial outcomes and should be meaningfully incorporated in an investor’s valuation process.
Today, many investors rely on third-party ESG ratings to evaluate a company’s sustainability. But on their own, ESG ratings cannot define sustainability or serve as a true proxy for responsible investing impact, in our view. These ratings can play an important role in a sustainable investing process, but they are also flawed. For example, ESG ratings lack standard methodologies, so ratings of companies can vary dramatically between agencies. While credit ratings of issuers are about 90% correlated between providers, equity ESG ratings are less than 50% correlated between agencies. And since ESG ratings are based on publicly available information, they tend to reward companies that can meet reporting criteria—instead of best practice.
That’s why we quantify ESG factors independently at the company level with our own research to evaluate material ESG factors of investment candidates and portfolio holdings. As part of this process, we conduct independent fieldwork to develop a complete picture of corporate behaviour. We call this grassroots research, in which we visit company facilities, speak with employees and customers to fully understand the ecosystem in which the firm operates.
''Engagement is about developing relationships with management that allow us to wield influence and foster positive change, often on controversial positions, from a position of mutual respect”
Investment process
Our Sustainable US Equity strategy puts capital to work in 30 to 60 US companies to maximise positive social outcomes and investment opportunity. Each company must fit into a theme, and also offer attractive return potential. ESG factors and risk models are integrated into the investment process to evaluate the potential long-term hazards and return outlook. For every investment candidate, we calculate a bottom-up internal rate of return, similar to the approach used by private equity funds. The IRR approximates the return potential for owners of the business, based on the current share price, cash flow over the next five years and a terminal value for the business, discounted back to today.
Performance history vs IA UK Equity Income sector
£45,000
£40,000
£35,000
£15,000
£10,000
Jun-13
Fund managers
Daniel Roarty
chief investment officer, Sustainable Thematic Equities
Ben Ruegsegger
portfolio manager, Sustainable US Thematic
Performance history (%)
ES AllianceBernstein Sustainable US Equity Fund (I GBP)
AB Sustainable US Thematic Equity Portfolio (I USD)
OEIC
FCP
Fund Type
Fund Inception:
13/03/2020
07/05/2001
Domicile
UK
Luxembourg
AB Sustainable US Thematic Equity Strategy²
*Hover for details
Source: Morningstar, as of 31/03/2021 for Allianz UK Listed Equity Income Fund – C (Inc), net of fees , IA UK Equity Income sector. A ranking, a rating or an award provides no indicator of future performance and is not constant over time. Past performance is not a reliable indicator of future results.
Past performance is not indicative of future results.
Dan Roarty, chief investment officer, Sustainable Thematic Equities
*
¹ The classification is made in accordance with and for the purposes of Sustainable Finance Disclosure Regulation (EU) 2019/2088 and is not meant to provide exhaustive information on the suitability of the Portfolio for a prospective investor’s investment needs. For more information on AB’s Sustainability-Related Disclosures please refer to the responsible investment section on www.alliancebernstein.com.
Past performance does not guarantee future results. As of 30 April 2021. ² Based on performance of the institutional AB Sustainable US Thematic Composite (the “Strategy”), gross of fees, in GBP. Although similar, the performance of the Strategy is not the same as that of the ES AllianceBernstein Sustainable US Equity Fund or the AB Sustainable US Thematic Equity Portfolio. The Strategy uses the benchmark shown for comparison purposes only. The Strategy is actively managed, and the Investment Manager is not constrained by its Benchmark when implementing the investment strategy. The returns presented above are gross of fees and do not reflect the deduction of investment-management fees: the client’s return will be reduced by the management fees and any other expense incurred in the management of their account. Full GIPS composite performance disclosures for the Strategy are available on request. ³ Performance from 1 July 2013 reflecting management team and strategy change. Source: S&P and AB
FOR UK INVESTMENT PROFESSIONALS ONLY. For investment professional use only. The value of an investment can go down as well as up and investors may not get back the full amount they invested. Capital is at risk. Past performance does not guarantee future results. The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams and are subject to revision over time. Investing in the portfolio entails risks. For a full explanation of risks and the overall risk profile of this Fund and the share classes within it, please refer to the Key Investor Information Documents (KIIDs) and Prospectus. The AB Sustainable US Thematic Portfolio is a portfolio of AB FCP I, a mutual investment fund (fonds commun de placement) organized under the laws of the Grand Dutchy of Luxembourg. The AB Sustainable Global Portfolio.is a portfolio of AB SICAV I, an open-ended investment company with variable capital (société d’investissement à capital variable) incorporated under the laws of the Grand Duchy of Luxembourg. The ES AllianceBernstein Funds are Sub Funds of ES AllianceBernstein UK OEIC, an open-ended investment company. Equity Trustees Fund Services Ltd is the Authorised Corporate Director (ACD) of the Funds. The Prospectus, KIID, annual and semi-annual reports are available, in English, free of charge from the ACD's website, (www.equitytrustees.com) Full GIPS composite performance disclosures are available from the Investment Manager, on request. This information is issued by AllianceBernstein Limited, 50 Berkeley Street, London W1J 8HA, it is for marketing purposes. Registered in England, No. 2551144. AllianceBernstein Limited is authorised and regulated in the UK by the Financial Conduct Authority (FCA – Reference Number 147956). The [A/B] logo is a service mark of AllianceBernstein and AllianceBernstein® is a registered trademark used by permission of the owner, AllianceBernstein L.P. © 2021 AllianceBernstein L.P. All rights reserved.
Find out more: AllianceBernstein.com/go/sustainableUSequity
Our themes – Climate, Health, and Empowerment
We invest exclusively in themes derived from the UNSDGs because business alignment with these goals can enhance long-term growth potential and reduce risk. Choosing themes that focus on where the world is going can help investors create a portfolio designed to grow for the future. We’ve derived three primary themes – Climate, Health and Empowerment – that will be important to society for many decades to come. Within each category, we’ve identified 12 sub-themes to further clarify the investment opportunities. Sub-themes within climate include, for example, cleaner energy generation, resource efficiency and sustainable transportation. Investment ideas are generated as we search for companies that offer products and services to address the themes and subthemes.
Themes expected to persist, irrespective of changing geopolitical or economic factors
Climate
+ + + +
Our three primary themes are supported by dynamic, narrow and definable sub-themes
Health
Empowerment
Cleaner energy Resource efficiency Sanitation and recycling Sustainable transportation
Access to quality care Food security and clean water Medical innovation Well being
Education and employment services Financial security and inclusion Information and communication technologies Sustainable infrastructure
Engaging for Positive Change is how we aim to influence the management of our holdings. Some portfolio managers might think that sending an email to a company counts for engagement points, even if no reply is received. We disagree. In our view, engagement is about forming a productive partnership with management aimed at making progress in a variety of areas over the long term. That doesn’t mean getting chummy with management; rather, it’s about developing relationships that allow us to wield influence and foster positive change, often on controversial issues, from a position of mutual respect. This type of engagement takes time, patience and multiple efforts over years. Real change doesn’t happen overnight.
This type of approach can often be more effective at persuading companies to take the right steps toward a more sustainable future than taking a combative stance. We believe that playing an active role to promote positive change ultimately helps businesses deliver better results and supports long-term return potential.
Sector exposure and top performers
Our approach unlocks a broad universe of sustainable investing opportunities. Many investors think sustainable investing limits a portfolio to a very narrow subset of the broader equity market. Our research shows the opposite: many companies across a wide range of industries and countries are in fact aligned with the SDGs (Displays, Right). We identified companies with at least $1bn in market capitalisation that generate some portion of their revenues from the sale of SDG-aligned products and services.
Identifying and researching these companies allows us to better understand the implications of sustainable investing, and report portfolio and benchmark performance and alignment with the SDGs, while dispelling some common misperceptions about sustainable investing. In the US, we found 774 companies that are aligned with the SDGs, including 242 in the S&P 500, representing 66% of the benchmark’s weight. With such a large number of SDG-aligned companies to choose from, we aim to position our sustainable portfolio for long-term growth by finding better stocks for a better world.
Bringing a private equity-like mentality to security selection
Our disciplined approach drives competitive finacial returns
For informational purposes only. There can be no assurance that any investment objectives will be met. Source: AB
+ Focus on long-term (five-year) return potential + Identify and quantify material risks + Consider ESG factor impact at all stages of analysis
Long-term thematic opportunities Deep fundamental research Grassroots insights Esg integration
Return
Risk
IRR
Cost of equity
Net Assets (As at 30/04/2021)
£149.7m
$689.6m
Total # of Holdings
49
ISIN
GB00BL4SFB26
LU0128316170
Bloomberg
ESAUSEI
ACMBAVI
Performance Comparator
S&P 500 Index
EU SFDR Classification¹
N/A for UK Domiciled Fund
Article 9 (Dark Green)
Sources: ¹ Accenture Covid-19 Consumer Research, conducted March 19–25 and April 2–6, 2020. ² Includes organic, Fairtrade, Rainforest Alliance and Marine Stewardship Council (MSC) certified product. https://bit.ly/3xjV4dB ³ Covid-19 Disruptions in the US Meat Supply Chain, Federal Reserve Bank of Kansas City. ⁴ Popkin, BM, Du, S, Green, WD, et al. Individuals with obesity and Covid‐19: A global perspective on the epidemiology and biological relationships. Obesity Reviews. 2020; 21:e13128. https://bit.ly/3pEP3W3 ⁵ UN Food and Agriculture Organization. ⁶ European Commission.
Cumulative growth of £10,000³
Complete 12 month returns
S&P 500 Index (GDR)
Relative performance
05/01/2016-04/30/2017
33.5%
+4.0%
05/01/2017-04/30/2018
6.4%
+4.7%
05/01/2018-04/30/2019
19.9%
+2.9%
05/01/2019-04/30/2020
4.2%
+5.9%
05/01/2020-04/30/2021
33.0%
+9.3%
37.5%
11.1%
22.8%
10.1%
42.3%
Sector overview (%)
Sector exposure and top holdings
10 largest holdings
Weight (%)
Theme
LabCorp
2.8
Flex
SVB Financial
2.6
Philips
Bio-Rad Laboratories
Bruker
2.5
Waste Management Inc.
NextEra Energy
2.4
Aptiv
Security name
Danaher
Total
25.5
Sector weights and holdings are subject to change. For illustrative purposes only. Numbers may not sum due to rounding. Numbers are net of cash. As of 31 March 2021. Source: S&P and AB
AB Sustainable USThematic Portfolio
S&P 500
0.4
2.7
81.0
57.3
13.2
9.1
14.5
13.8
7.5
7.7
Technology
Healthcare
Industrials
Financials
ConsumerDiscretionary
Cash
Utilities
Real Estate
ConsumerStaples
CommunicationServices
Energy
Materials
35.2
26.6
18.4
13.0
8.9
9.0
11.3
12.4
6.6
4.2
1.6
1.5
6.1
10.9
Jun-14
Jun-15
Jun-16
Jun-18
Jun-17
Jun-20
Jun-19
£30,000
£25,000
£20,000
inding companies that are truly making a difference on environmental, social and governance (ESG) issues requires investors to sift through thousands of potential candidates. Equally important, it takes disciplined financial analysis to make sure that an ESG-focused target company
years, it is estimated that humanity will need to produce 50% more food by 2050.
T
The colossal challenge of reducing waste and increasing yields is augmented by critical ecological constraints; food supply must shift from harming to healing the biosphere. Feeding the growing population on dwindling fresh water supplies while simultaneously reversing biodiversity decline and climate change will stretch humanity’s innovative capacity. Fortunately, many companies are rising to the challenge.
The global food system is radically transforming in response to sustainability challenges. Robbie Miles, fund manager of Allianz Food Security, discusses how investors can play a role in enhancing food security
With this context in mind, the Allianz Food Security fund is constructed around three strong convictions:
Demand for healthy and sustainable food is a structural shift
Alternative culture
Allianz Food Security follows our thematic investment approach, built on an extensive understanding of secular drivers, and the ability to identify companies with long-term potential. These companies have greater growth potential, are more resilient to macroeconomic and political volatility, and benefit from regulatory tailwinds.
90%
3 Months
Fund
Competitive returns with similar risk to the benchmark
80%
70%
60%
50%
40%
30%
20%
10%
0%
1 Year
3 Years
5 Years
Since inception
Annualized performance in share class currency (%)
Benchmark
YTD 2021
Since inception (06/10/2020)
6.81
8.62
15.30
12.46
100%
Mar-19
Market cap distribution shows a diversified portfolio
Over $30 billion - Ultra Large Cap
$3-$5 billion - Mid Cap
Sep-19
Dec-19
Mar-20
Sep-20
Dec-20
Mar-21
$5-$30 billion - Large Cap
Less than $3 billion - Small Cap
8.0
8.2
37.0
46.8
14.6
8.1
36.7
40.6
19.0
5.4
34.9
17.8
9.2
44.1
28.9
17.4
5.9
53.2
23.6
8.5
41.9
11.8
6.4
44.8
15.4
5.2
35.6
43.9
14.9
7.3
32.0
45.7
Volatility
05/31/18
25%
15%
5%
10/31/18
03/29/19
08/30/19
01/31/20
06/30/20
11/30/20
08/31/21
PineBridge has a long history managing Asian equity strategies, with our earliest strategy launched in the early 1990s. Our Asia ex Japan Equity team consists of 24 investment professionals situated across the region. The team’s enviable reach in the region positions us to capture shifts and emerging trends from the ground up, with approximately 2,000 direct company contacts every year.¹¹ These on-the-ground inputs are combined with global industry perspectives from across the firm through regular structured collaboration, underpinning a robust process of stock selection. As Asia’s growth trajectory continues to diverge from the rest of the world, we think it’s time for investors to consider the benefits of an actively managed strategy that’s as forward-looking as the region. The PineBridge Asia ex Japan Equity Fund, backed by our team of on-the-ground specialists, offers investors the skill and experience needed to navigate dynamic markets and deliver sustained return potential.
Local presence, global resources
The fund performance is calculated net of fees on NAV to NAV in USD with dividends reinvested. Returns over one year are annualized. Performance is representative of Y class in USD. The return of your investment may increase or decrease as a result of currency fluctuations if your investment is made in a currency other than the base currency of the fund.
PineBridge Investments, as of 31 March 2021. For illustrative purposes only. We are not soliciting or recommending any action based on this material. Weighted average market cap is calculated by weighting each component company according to the size of its total market capitalization. Market capitalization is calculated by multiplying the total number of a company's outstanding shares by the current market price of one share.
Bloomberg, PineBridge Investment as of 31 March 2021. Calculated based on rolling one-year period. Volatility is measured by standard deviation, which is the basic measure of the fund risk, i.e. the volatility of the fund’s returns in relation to its average. The higher the standard deviation, the more volatile is the fund’s returns. For illustrative purposes only. We are not soliciting or recommending any action based on this material.
Source: Allianz Global Investors, as of 31/05/2021 for Allianz Food Security – P – GBP, net of fees , MSCI AC World Index Total Return (Net). Past performance is not a reliable indicator of future results.
Bloomberg, PineBridge Investment as of 31 March 2021. Calculated based on rolling one-year period. Volatility is measured by standard deviation, which is the basic measure of the fund risk, i.e. the volatility of the fund’s returns in relation to its average. The higher the standard deviation, the more volatile is the fund’s returns. For illustrative purposes only. We are not soliciting or recommending any action based on this material. Past performance is not indicative of future results.
FOR UK INVESTMENT PROFESSIONALS ONLY. Past performance is not a reliable indicator of future results. Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Allianz Food Security is a sub-fund of Allianz Global Investors Fund SICAV, an open-ended investment company with variable share capital organised under the laws of Luxembourg. The value of the units/shares which belong to the Unit/Share Classes of the Sub-Fund that are not denominated in the base currency may be subject to an increased volatility. The volatility of other Unit/Share Classes may be different and possibly higher. The views and opinions expressed herein, which are subject to change without notice are those of the issuer companies at the time of publication. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by BaFin (www.bafin.de). Allianz Global Investors GmbH has established a branch in the United Kingdom, Allianz Global Investors GmbH, UK branch, 199 Bishopsgate, London, EC2M 3TY, www.allianzglobalinvestors.co.uk, deemed authorised and regulated by the Financial Conduct Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website (www.fca.org.uk). Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. AdMaster: 1696175.
Sources: ¹ Ac centure Covid-19 Consumer Research, conducted March 19–25 and April 2–6, 2020. ² Includes organic, Fairtrade, Rainforest Alliance and Marine Stewardship Council (MSC) certified product. https://bit.ly/3xjV4dB ³ Covid-19 Disruptions in the US Meat Supply Chain, Federal Reserve Bank of Kansas City. ⁴ Popkin, BM, Du, S, Green, WD, et al. Individuals with obesity and Covid‐19: A global perspective on the epidemiology and biological relationships. Obesity Reviews. 2020; 21:e13128. https://bit.ly/3pEP3W3 ⁵ UN Food and Agriculture Organization. ⁶ European Commission.
Robbie Miles fund manager, SDG Equity Funds
Find out more at: allianzgi.co.uk
Source: ⁹ Bloomberg as of 31 December 2020.
Source: ¹⁰ FactSet as of December 2020.
Source: ¹¹ As of 31 December 2020
The good news is that the private sector can play a significant role – aligned with the Sustainable Development Goals (SDGs) – by investing to profitably improve the sustainability of the food economy.
Global meat market sales forecast 2025-2040 ($bn)
Novel vegan meat replacement
Cultured meat
Affordability (impacted by yield increases, waste reduction and intelligent food distribution systems) is the key to addressing the hunger suffered by 800 million people due to insufficient food access
The food and agriculture system will transition from being a source of GHG emissions, to a net carbon sink, whilst also reversing its currently negative impact on biodiversity.
We believe that in all three areas (nutrition, food supply-chain and sustainable agriculture), attractive financial opportunities await those companies offering solutions. Awareness is growing about sustainability, how diet impacts physical and mental health and the links between nutritional content with the way food is grown. The internet proliferates this evolution in collective consciousness, which supports demand for affordable and nutritious food that is grown with integrity.
The sub-themes that the fund seeks to capitalise on are numerous, but some examples include:
1) Within aquaculture, fish farmed in giant pools on land can avoid the common problems of ocean-based farms, such as sea-lice and effluent contamination. A ton of farmed salmon requires 4 tons of wild-caught fish feed for protein and omega 3, so demand for plant or insect-based alternatives to feed salmon are growing rapidly.
2) Within crop production, indoor farms shorten the distance between food production and consumption, thus improving the resiliency of food supply whilst cutting water usage by over 90%. Indoor grown leafy greens are fresh and delicious, often commanding a price premium. Out in the field Artificial Intelligence (AI)-enabled precision agriculture greatly reducing the amount of chemicals applied to fields. Furthermore, biological crop inputs reduce reliance on synthetic herbicides, pesticides, fungicides and fertilizers that currently contribute to the rapid decline in biodiversity globally.
The fund exclusively invests in those companies that are set to benefit financially from selling products and services that enable the SDGs related to Food Security. The fund avoids companies that detract from the SDGs, not least because we believe these companies are at risk of disruption as the global food system evolves.
Three core areas to improve the sustainability of food ¹
Conventional meat
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
2025
2030
2035
2040
Source: AT Kearney
Finding an environmentally sensitive approach
The answer to hunger is not simply to ramp up status-quo food production, even if that were a feasible option. A more environmentally sensitive approach is needed. Around a third of human-caused greenhouse-gas (GHG) emissions come from the food system. The irony is that climate change is exacerbating the droughts, floods and other volatile weather events that threaten farmers’ crops and livestock.
“Food supply must shift from harming to healing the biosphere”
Robbie Miles, fund manager, SDG Equity Funds
The UN Sustainable Development Goals (SDGs)
• • •
Source: ¹ United Nations – Sustainable Development Goal / AllianzGI, 2020
Reduce environmental damage of agricultural activities
•
Sustainable agriculture
Food supply chain
Improve resource efficiency
• •
Reduce food waste
Nutrition
Improve nutritious content of foods
Support healthier diets globally
Three reasons to invest
1
Outcomes aligned with the UN SDGs
A growing population, diets consisting of poor-quality processed foods and unsustainable food production practices are only some of the problems we face today. Investing for Food Security in alignment with the UN SDGs can help improve and ensure the sustainability of our food production cycle.
2
Proven thematic investment process
An investment process based on long-term structural trends (megatrends), our thematic investing approach looks for long-term winners with greater growth potential and resilient business models. With a family of thematic investing funds at AllianzGI, our team has a proven track record in this space.
3
Targeting three alphas
Targeting financial, social and environmental alpha, Allianz Food Security is a concentrated portfolio of companies with the most attractive fundamentals and the best solutions to help improve Food Security around the globe.
Our thematic investing approach
The team actively selects a concentrated portfolio of companies based on a combination of fundamental research, ESG analysis and the contribution of each company to the respective SDGs. Companies engaged in controversial business practices or activities are excluded.² Active stewardship then augments the impact.
Finding the most promising companies within a topic
Thematic approach targets the structural growth driven by economic and social shifts. It provides an alternative framework to identify key enablers and beneficiaries involved in the change.
Fund manager
Performance history vs benchmark
Source: ² Details of our exclusion criteria (including weapons, coal, tobacco) can be found here: https://bit.ly/3dxRDIF
Aim to solve crucial sustainability challenges. ESG³ and SRI³ approaches focus on best practices and risk mitigation.
Source: ³ ESG: Environmental, Social and Governance. SRI: Sustainable Responsible Investment
SWEET SPOT
THREE ALPHAS
Financial + Environmental + Social
The strategy aims to invest in companies that provide solutions to a sustainable future, and outperform the market as the positive environmental and social outcomes drive long-term financial performance
THEMATICS
SUSTAINABILITY
120.00
110.00
100.00
90.00
Oct 2020
Nov 2020
Dec 2020
Jan 2021
Mar 2021
May 2021
Apr 2021
Feb 2021
Allianz Food Security - P - GBP
MSCI AC World Index Total Return (Net)
he global food system is hugely inefficient. A third of all food goes to waste, according to the United Nations Food and Agriculture Organization, while 815 million people live every day in the shadow of hunger. As the human population grows by another two billion people over the next 30
Robbie Miles
fund manager, SDG Equity Funds
at Texas-based food company Vital Farms enjoy in return for producing their highly prized eggs.
S
It's a scene you'd expect to come across in a small organic farm, the sort run by a family committed to ethical production. Vital Farms certainly started out that way. But it is now going big. So big in fact that, last year, the ethical food company secured a valuation of $1.3bn in one of the sector's most-anticipated initial public offerings.
Covid-19 has disrupted the food’s sector’s supply chains and is set to change consumer eating habits for good
Covid: shaken and stirred
The pandemic has unleashed turmoil across a wide range of industries. Food suffered more than most. Lockdowns and border closures disrupted the distribution of agricultural products and also led to severe labour shortages at food processing facilities. At the same time, Covid-19 triggered a change in consumer behaviour.
A survey by consultancy Accenture conducted during the pandemic found that consumers increasingly prioritised health and sustainability when deciding what to buy.¹ In the UK alone, sales of ethical food and drink are forecast to rise by 17% to £9.6bn by 2023, having already grown more than 40% in the five years to 2018.² In response, the food industry is investing heavily in a wide range of high-tech solutions. Many of which are geared to strengthening supply chains, raising production standards and reducing food waste.
''As the global population grows and our eating habits evolve, improving the way we grow, transform and distribute food will be a necessity, not an option. This makes for a compelling long-term investment case”
The Pictet-Nutrition fund: investing in the future of food
Our Nutrition strategy directs capital to companies which improve sustainability, access, and quality of food necessary for health and growth. The strategy invests across the entire food chain, from farm to fork.
Portfolio manager:
Caroline Loke PineBridge Asia ex Japan Equities Fund, Hong Kong
Key Facts
Asset Class
Equity
MSCI All Country Asia ex Japan Daily Total Return Net Index
Fund Inception Date
26 Jul 1991
Fund Base Currency
USD
Fund Size
US$ 389.6 million
No. of Securities
47
UCITS
Morningstar Rating
***
Performance of the Pictet-Nutrition fund
YTD
3 months
1 year
3 years (annualised)
5 years (annualised)
Since inception (annualised)
9.6%
Index
12.2%
11.5%
24.1%
6.0%
8.2%
13.9%
12.9%
24.6%
7.3%
*Source: FactSet, PineBridge as of January 2021. For illustrative purposes only. We are not soliciting or recommending any action based on this material.
Data for the I-dy GBP share class, in GBP, net of fees, as at the end of June 2021. Inception date of fund: 10/09/2009. Index: MSCI AC World (GBP) Source: Pictet Asset Management
FOR UK INVESTMENT PROFESSIONALS ONLY. This marketing material is issued by Pictet Asset Management (Europe) S.A.. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund’s prospectus, KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on assetmanagement.pictet or at Pictet Asset Management (Europe) S.A., 15, avenue J. F. Kennedy, L-1855 Luxembourg. The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments or services.Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management (Europe) S.A. has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional. The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund’s full documentation or any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document. Any index data referenced herein remains the property of the Data Vendor. Data Vendor Disclaimers are available on assetmanagement.pictet in the “Resources” section of the footer. This document is a marketing communication issued by Pictet Asset Management and is not in scope for any MiFID II/MiFIR requirements specifically related to investment research. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any products or services offered or distributed by Pictet Asset Management. Pictet Asset Management has not acquired any rights or license to reproduce the trademarks, logos or images set out in this document except that it holds the rights to use any entity of the Pictet group trademarks. The trademarks, logos and images set out in this document are used only for the purpose of this presentation. © Copyright 2021 Pictet
Sources: ¹ Accenture Covid-19 Consumer Research, conducted March 19–25 and April 2–6, 2020. ² Includes organic, Fairtrade, Rainforest Alliance and Marine Stewardship Council (MSC) certified product. https://bit.ly/3xjV4dB
Mayssa Al Midani, CIIA, senior investment manager, Pictet-Nutrition fund
For further information visit: am.pictet
The food industry will soon be full of companies like Vital.
That's because the firm's success owes much to some powerful trends unleashed by Covid-19. Two stand out. First, food producers are having to re-configure their supply chains after the pandemic disrupted global trade. It's an environment where complex international sourcing and distribution networks are under pressure and under scrutiny.
Second, the industry now has to cater to the needs of a more demanding customer base - one that cares less about convenience and more about the nutritional and ethical aspects of what it buys and eats.
In a few years, the food industry could look very different, according to members of the Nutrition Strategy Advisory Board. It might consist almost entirely of companies that possess only the strongest social and environmental credentials.
*Source: World Bank, Bloomberg, PineBridge as of December 2019, accessed in February 2021. For illustrative purposes only. We are not soliciting or recommending any action based on this material.
It is perhaps in the meat industry where the pandemic-induced transformation is particularly acute. Slaughterhouses and meat-processing plants found themselves in the frontline of the Covid battle after cluster of virus cases emerged in facilities worldwide. In the US for example, more than 80 beef and pork packing plants in the US reported virus outbreaks between April and June 2020. By mid-May, meat production fell 40% below 2019 levels.³ But keeping facilities safe and virus free isn't the industry's only problem. The pandemic also brought into relief the health and environmental costs associated with meat consumption and production. Studies have shown a strong link between obesity and Covid.⁴
At the same time, consumers have been reminded of meat's outsized environmental footprint. Livestock farming is responsible for 15% of greenhouse gas emissions and accounts for some 29% of the world’s freshwater use.⁵
It is for these reasons that Pictet Asset Management’s Advisory Board members expect meat consumption to fall and healthier alternative meats and plant-based diets to become more popular.
Alternative meat producers such as Beyond Meat and Impossible Food have already raised hundreds of millions of dollars in funding in recent years. Their expansion has also seen them seal agreements with major supermarkets and fast food chains to sell their high-margin products. To our Advisory Board members, this represents only one aspect of the meat revolution.
Internet of Food Things
Another is increased automation. Compared to other parts of the food industry, meat production is very labour intensive. This became a vulnerability during the virus outbreak as plants struggled to remain operational with severely depleted workforces. Many producers now see technology as means to improve their resilience.
The same is true for industries beyond meat. Greater use of automated systems would not only ensure food security and quality, however. It brings the added benefit of more efficient resource use. According to our Advisory Board, the production lines of the future will be built on sensor networks, the Internet of Things and blockchain technology. Other points in the supply chain are also set to make greater use of technology, particularly logistics and distribution.
The public health crisis has also trained a spotlight on food hygiene standards. Unsettled by the rapid spread of the virus, consumers have understandably become concerned at the possibility of food being a transmitter of disease. Technology can help assuage such fears, our Advisory Board members say. The food industry is home to a growing number of specialist companies developing advanced food testing and diagnostics services. Our advisors expect food producers to invest more heavily in sustainable grocery packaging that has antibacterial properties, and make greater use plastic alternatives or other innovative technologies such as QR codes.
Interestingly, these products not only improve food safety and reduce the risk of contamination, they are also good for the environment as they can help reduce waste. Waste is one of the food industry's biggest problems. Europe alone wastes an eye-watering 20% of all produced food, worth some €143bn a year.⁶
Taste of the future
Faced with a growing world population and climate change, the food industry was already under severe strain even before Covid-19 struck. Looking ahead however, the pandemic could help revitalise it. If food producers and distributors move quickly to deploy advanced technology and innovation to meet growing consumer appetite for food that is healthier and more sustainable, the industry will be fit to meet the demands of the 21st century.
Long-term growth potential: both governments and consumers are demanding higher quality food and improved diets. Therefore, companies enabling better nutrition should benefit from growth.
Responsible and sustainable approach: companies that provide solutions to increase output with minimal resource use and waste (i.e. lower environmental impact) will be crucial in the shift toward a more sustainable food system.
A diverse and resilient opportunity set: across several sectors and geographies with different characteristics; supported by strong long-term secular growth tailwinds, the strategy aims to outperform the broader market over economic cycles.
The strategy is suitable for investors who are prepared to invest for the long term and are willing to take a potentially higher risk with their investment.
Each stock must have a high thematic “purity” for it to qualify as a potential investment. Thematic purity is a proprietary indicator of how specialised a company’s activities are. In the fund, we exclude activities such as the manufacture of beef, palm oil, alcoholic and carbonated soft drinks as well as unhealthy snacks from this purity calculation.
pending an entire day in the fresh air and sunshine, having the freedom to roam in outdoor space of some 108 square feet, and being able to feast on delicious wildflowers in open pastures untouched by pesticides or herbicides. This is the leisurely daily routine that the “girls” – or hens –
Sources: ³ Covid-19 Disruptions in the US Meat Supply Chain, Federal Reserve Bank of Kansas City. ⁴ Popkin, BM, Du, S, Green, WD, et al. Individuals with obesity and Covid‐19: A global perspective on the epidemiology and biological relationships. Obesity Reviews. 2020; 21:e13128. https://bit.ly/3pEP3W3
Source: ⁵ UN Food and Agriculture Organization.
Source: ⁶ European Commission.
