Responsible investing up in the ETP sector
The growth of index-based strategies and exchange traded products (ETP) along with adoption of responsible investing principles have resulted in the creation of hundreds of indices globally which focus on a range of environmental, social and governance (ESG) factors, according to the Zenith Investment Partners’ report.
However, defining responsible investing was still, by its nature, highly subjective and reliant on a framework of judgements on issues, implementation and stewardship, Zenith’s head of real assets and listed strategies, Dugald Higgins, said.
“As a result, the debate is increasing from pundits on all side. Is true responsible investing possible via an index-based approach? We see a new battleground emerging in the old active versus passive debate,” he noted.
Following this, for investors who would like to know exactly what they were investing in, ETPs had two clear advantages such as a clear set of rules about what could and could not be included in a portfolio as well as their full daily transparency on all holdings.
Also, stewardship capabilities were emerging as one of the fundamental differentiators between managers in both active and index-based strategies.
“Investors need to understand which managers have deep active engagement capabilities and how effective these are in ultimately shaping outcomes,” Higgins added.
“Conversely, the flow of ESG-related data means that ETPs can be somewhat backward-looking in choosing securities and tend to reflect more developed opportunities or exclusions.
“However, they have difficulty in capturing companies that are emerging in this space or transitioning to stronger ESG overlays, which can be where much of the ultimate impact lies. If investors are looking to identify companies that are improving in this space, ETPs may have more difficulty in capturing those opportunities.”
According to Zenith, the local ETP industry continued to expand rapidly, mirroring global trends, and as at 30 September 2020, ETPs reached a market capitalisation of $A71.1 billion, up 27% on the previous year.
AUTHOR
Oksana Patron
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