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Sustainable investing with Sustainable Emerging Markets Equity IsoPro®

16.03.2015

Finreon offers the established IsoPro® concept now on sustainable titles in the emerging markets as well

Sustainable investing has become a trend. The reasons are diverse, ranging from the prevention of reputational risks to the active promotion of a more sustainable economy. Especially in the emerging markets, there are major differences in the sustainability of enterprises - a sustainable investment strategy makes particularly sense in this context.

However, sustainable investment universes with market cap weighting suffer from systematic performance drags which reduce the risk/return profile. For existing sustainability approaches, the focus is often placed on the filtration according to sustainability criteria, while the resulting portfolio characteristics are neglected. Neither the biases that arise from the selection of exclusively sustainable titles, nor the structural deficits of market cap weighted investment universes are resolved. For these reasons up to now, many investors need to cope with a sub-optimal performance of their sustainable portfolios.

This is exactly where Finreon Sustainable Emerging Markets Equity IsoPro® comes in. The determination of the sustainable investment universe and the portfolio construction process are strictly separated. In a first step, the universe is selected from sustainable stocks. For this purpose Finreon cooperates closely with Inrate, one of the most renowned sustainability rating agencies in Europe. With a team of specialists, the sustainability of enterprises is comprehensively analyzed in a consistent rating framework. Based on this rating framework the sustainable investment universe is determined.

In a second step, the focus is on portfolio construction. The biases and structural deficits are corrected on the basis of the established IsoPro® concept. By equally weighting all sustainable titles within the previously determined investment universe, both the concentration risk and the noise around the fair value can be reduced. At the same time a shift towards value and small cap stocks takes place. Thereafter, the weights are optimized towards the minimum-variance portfolio in a way that the portfolio has an optimized risk/return profile. Sector and country deviations are closely monitored.

"With Sustainable IsoPro®, the separation of selection of sustainable titles and the portfolio construction makes it possible to achieve a risk-adjusted outperformance relative to the market cap weighted benchmark in the long term while maintaining the same level of risk. Therefore, this portfolio is a direct, sustainable replacement of a passive core investment“, says Ulrich Carl, responsible for the IsoPro® product range of Finreon. The established IsoPro® methodology has a successful track record. In the case of Finreon Sustainable Emerging Markets Equity IsoPro® the outperformance compared to the MSCI Emerging Markets Index amounts to more than 2% since inception in July 2014. In January 2015, the fund of the strategy was successfully launched. (As of 28.02.2015)

The following share classes are available:

  • Finreon Sustainable Emerging Markets Equity IsoPro® (USD) Class-A: ISIN: CH0251429194, Valor: 25142919
  • Finreon Sustainable Emerging Markets Equity IsoPro® (USD) Class-I: ISIN: CH0251429236, Valor: 25142923
  • Finreon Sustainable Emerging Markets Equity IsoPro® (USD) Class-D: ISIN: CH0251429202, Valor: 25142920
  • Finreon Sustainable Emerging Markets Equity IsoPro® (USD) Class-V: ISIN: CH0272032944, Valor: 27203294

Within the fund, Finreon, as investment advisor, is responsible for the portfolio construction, while Credit Suisse is responsible for the investment management. The Sustainable IsoPro® strategy is also available on various sustainable universes as a mandate.

In case of any questions about Sustainable IsoPro® please do not hesitate to contact:

Simon T. Müller, Head of Business Development, Finreon AG (simon.mueller@finreon.ch, +41 71 230 08 10)

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