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New Equity Perspectives

October 2016

The latest bfinance data reveals major changes in institutional investors’ equity mandates through 2017. This collection of articles explores the most significant shifts and addresses key debates within emerging market equities, ESG integration and active/passive management.

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IN THIS PAPER

Emerging market equity and the ESG challenge. ESG strategies are less commoditised among emerging market equity managers than their developed market peers. The team considers the relationship between ESG and returns in emerging markets, the obstacles to integration and the impact on fees.

Will the real active managers please stand up? Clients have clamoured for ‘real active managers’ and firms have marketed themselves accordingly. But to what extent do various increasingly popular measures of ‘activeness’ actually matter?

ESG dimensions in the active/passive debate. We were recently asked to address the question: “is ESG compatible with the rise of passive management?” At first glance, the answer might appear to be “yes,” based on the expanding universe of passive indices and semi-passive products with an ESG dimension.



WHY DOWNLOAD?

The year to October 2017 brought substantial changes in new equity manager selection. Searches for emerging market and Asia-focused equity managers shot up the priority list. ESG, an important area of focus, is becoming increasingly relevant beyond the traditional developed markets. The shift in allocations has been accompanied by some fascinating trends on the factor side. In a period of exceptionally low volatility, a narrow universe of stocks – those showing high resilience and strong earnings growth – have driven outperformance.

For “New Equity Perspectives,” a series of articles by bfinance’s equity specialists, we asked the team to address three key themes that have dominated recent conversations with investors and the industry: Emerging Markets, ESG and the Active/Passive Debate. What has really changed, based on the latest manager research? How are these fundamental themes not only evolving but colliding and conflicting with each other?

First, the team examines the difficulties of integrating sustainability into Emerging Markets strategies and finds interesting patterns in terms of performance. Second, Justin Preston rebuts the now-conventional wisdom favouring higher active share, lower turnover and higher concentration. Finally, we put Joey Alcock on the spot with a journalist’s brainteaser: is ESG compatible with passive management?

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