How does the fund of funds structure of the Sustainable Multi-Asset Allocation Fund help investors take advantage of opportunities in the sustainable investment arena?

The past few years have seen a transformation in the values driving investor behavior, leading to increased scrutiny of the conduct of company management teams. An increasing number of investors are seeking ways to build a positive impact into their portfolios, tied to emerging sustainability trends around the environment, society, technology, and how businesses are managed.

The fund of funds structure provides an efficient and scalable way to access our ESG offerings, which cover a wide range of asset classes and styles. This structure provides the flexibility to respond to market changes while managing style and asset class risks. It also allows investors to take advantage of the firm’s growing range of sustainable strategies, which draw on the underlying managers’ wide breadth of expertise in ESG and security selection.

Why did you choose a flexible “60/40” asset allocation strategy?

We target a 60% equity/40% fixed income portfolio, which is actively rebalanced monthly, with performance measured against a blended benchmark of the MSCI All Country World Index (ACWI) (60%) and the Bloomberg U.S. Aggregate Bond Index (40%). We expect security selection to drive returns, with asset allocation used to add value and manage risk.

A 60/40 strategy allows us to target additional value by taking meaningful positions across equity and fixed income asset classes. This fits well with our two-pronged asset allocation process. The first component is strategic asset allocation, which is a slowly evolving process that is designed to add value over the longer term. The second is a dynamic asset allocation overlay, which is more reactive to the market environment, where we seek to add additional return and manage risk.

How do you define “sustainable” in the strategy?

We rely on the sustainability credentials of the underlying strategies, aiming to give investors peace of mind that their investment is contributing to the ESG movement. We currently use five actively managed equity and fixed income ETFs and expect this to grow as the firm’s ESG offering expands.

The underlying equity strategies invest in a mix of low-carbon-oriented global businesses that have been selected for their sustainable characteristics, compounding growth potential, and ability to have a positive impact on the environment and society. This mix also includes natural resources companies from across the supply chain that seem well positioned for the inevitable transition to a low-carbon economy.

The underlying fixed income strategies are focused on U.S. companies that are constructively advancing ESG principles and those that have demonstrated a commitment to making a positive impact across multiple social themes – for example, firms providing affordable lending to those who have historically struggled to find it.

Are there areas of particular interest for you, in terms of sustainable investments?

There are several interesting themes we can tap into within the in-house strategies we have access to. The U.S. and international ETFs incorporate more conventional sustainable themes and have significant exposure to growth-oriented companies that, in our view, represent major disruptors to their industries.

The third equity ETF focuses on resources companies that have a key role in supporting the transition to a more sustainable low-carbon economy. This focus on resources is quite different than many other ESG funds and can provide a nice complement from both an ESG and investment perspective.

More generally, the surging demand for sustainable investments has led to a rise in the number of sustainable funds available across asset classes. This opens the door to a vastly increased range of sustainable multi-asset portfolios, providing investors greater opportunity to pursue a strategy of asset allocation within a sustainable fund.