Holdings reveal RI funds’ management style

By Reid Baker
August 8, 2016


Responsible investing (RI) has almost become its own asset class, but not all responsible investing funds are created equal. Within the RI landscape you’ll find the usual differentiation of equity, balanced, and fixed income funds. But even focusing only on equity funds, you’ll find a relatively wide range of strategies that managers use to achieve responsible investing. So how do you determine the specific management style a fund uses for executing an RI strategy?

The central problem is the sheer number of varied methods managers use for achieving RI. You’ll find divestment strategies, where the manager will avoid certain sectors altogether. Activist approaches, on the other hand, believe the best way to influence a company is to own a company. Still others hold that owning the companies that meet top environmental, social, and corporate governance (ESG) criteria in any sector is a step in the right direction.

Ultimately the best way to determine how a fund manager executes his or her RI strategy is to look at the fund’s holdings. To see how this analytics approach works, let’s examine the strategies and portfolios of three RI funds in the Global Equity space with similar (but different) mandates.

Believing that it’s better to own a solution rather than avoid a problem, portfolio manager Martin Grosskopf invests in “companies that provide potential solutions for the sustainability issues facing the world.” This approach results in top holdings like Acuity Brands Inc. (NYSE: AYI), a provider of LED lighting solutions and Thermo Fisher Scientific Inc. (NYSE: TMO), whose mission statement is to “enable our customers to make the world healthier, cleaner and safer,” and Keyence Corp. (OTC: KYCCF), which landed on Forbes’ list of “World’s Most Innovative Companies.” The remaining top 10 holdings are shown in the accompanying table.

The top sector in the portfolio is Industrial Goods at 33%, followed by Consumer Goods at 16%, and Technology at 14%. The fund does not invest in fossil fuel producers.

The inception return (since December 1991) of the fund is 5.7% as of June 30, and the recent performance has been solid as the year-to-date return is in the first quartile of the Global Small/Mid Cap Equity category.

The Desjardins portfolio management team starts by analyzing the companies that comprise the MSCI All Country World Index with the best environmental performance in each sector. They rely on the “services of independent specialized firms” to assess each firm’s impact on “greenhouse gas emissions, water consumption, use of land, and ecosystems as well as the generation of pollutants and waste.”

The top holding is NVIDIA Corp. (NASDAQ: NVDA), a visual computing company aiming to reduce greenhouse gases by 15% per employee by 2020. Every year, their Global Impact Award goes to ground-breaking work on key social and humanitarian challenges. Also in the top 10 is Consolidated Edison Inc. (NYSE: ED), which offers New York City “natural, non-polluting, sustainable energy choices for homes, businesses and governmental entities.” The fund’s other top 10 holdings are shown in the accompanying table.

This fund has been around since September 1990 and has an average annual compounded rate of return of 6.7% over that stretch, including first-quartile performance in 2007, 2009, 2010, and 2014 in the Global Equity category.

NEI’s SRI program consists of four components: 1) ESG Evaluations; 2) Corporate Engagement Program; 3) Public Policy and Standards; and 4) Research. Having launched in January 2016, the NEI Environmental Leaders Fund specifically focuses on “companies active in the growing resource optimization and environmental markets.” The fund describes these markets as addressing several themes, including, “growing populations, rising living standards, increasing urbanization, rising consumption, and depletion of limited natural resources.”

The main function of top holding Suez Environnement (EPA: SEV) is water management, which includes the collection and distribution of water, production of drinking water, and wastewater treatment and reuse. This Paris-based company also provides recycling and waste recovery services, as well as sustainable urban development.

You’ll also find Thermo Fisher Scientific in this portfolio as well as Delphi Automotive Plc (NYSE: DLPH), a U.K.-based “high-technology company that integrates safer, greener and more connected solutions for the automotive sector.” The accompanying table shows the fund’s top 10 holdings.

Residing in the Global Equity category, this fund is too young to display performance.



Reid Baker is Director, Analytics and Data, at Fundata Canada Inc. This article is not intended as personalized investment advice. Securities mentioned are not guaranteed, involve risk of loss, and are subject to commissions.

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