IN THIS LIST

ESG Survey: Making ESG mainstream in Asian portfolios

U.S. Equities Market Attributes December 2020

ETF Transactions by U.S. Insurers in Q2 2020

Investment in Innovation: Opportunities for Potential Outperformance across the Market-Cap Spectrum

ETF Transactions by U.S. Insurers in Q1 2020

ESG Survey: Making ESG mainstream in Asian portfolios

While sustainable investment themes and practices are making steady in-roads across the region, the pace would increase with greater asset choice and standardised data, finds the latest AsianInvestor / S&P Dow Jones Indices ESG poll.

The pandemic has proven a time to shine for mandates that invest with ESG principles in mind. Fueled by an accelerated appetite for sustainable funds in Asia, Morningstar data for the third quarter of 2020, for example, showed a record high $8.7 billion of net inflows. This helped total ESG fund assets in Asia to reach $25.1 billion, up 75% from the previous quarter.

Investing through an ESG lens has become more common in line with growing evidence that companies with good characteristics are expected to be more resilient during a crisis. Yet it is easier said than done to find relevant investments, integrate ESG in decision making and evaluate different managers and strategies.

To assess the tangible influence of ESG on portfolios and on potential drivers for future engagement, a new survey by AsianInvestor, in collaboration with S&P Dow Jones Indices (S&P DJI), gathered insights from 85 senior investment executives in October and November 2020.

Key take-aways from these government entities, insurers, pension funds, private banks and other investors – across, Hong Kong, Taiwan, Australia, South Korea, Japan, Singapore, Thailand, Malaysia, Indonesia, the Philippines and India – include:

  • Just over 70% have less than 10% of their current AUM invested in ESGrelated mandates
  • Amid the pandemic, 49% of investors have either already increased their exposure to ESG funds, or plan to – however, 46% of respondents said Covid-19 has made no difference to their ESG-related exposure
  • The two key drivers to invest based on ESG factors are to improve returns and add longer-term portfolio resilience
  • Environmental themes will see the biggest inflows in 2021 – especially clean energy and lower carbon emissions
  • More standardised ESG data would have the biggest impact in encouraging investors to boost their ESG exposure
  • Traditional metrics remain the preferred approach to assess different ESG funds – notably, the track record of the investment strategy and fund performance over the benchmark

U.S. Equities Market Attributes December 2020

KEY HIGHLIGHTS

U.S. Equities Market Attributes December 2020: Exhibit 1

MARKET SNAPSHOT

My personal commentary is based oncrunching thenumbers, connecting the dots, making some observations, and presenting some possible future scenarios, hopefully based on the statistics, but as Mark Twain said, “There are three kinds of lies:lies, damned lies, and statistics.”I’ll leave predicting the COVID-19spread, treatment, consumer and business reaction, andpoliticalimpact to others, but the statisticsas I’ve seen them over more than43 years at S&P DJIsay we are paying a lot for expected earnings—even if we get the earnings we expect. Specifically, 2021 is projected (consensus operating estimates) to post a record year, as treatment fully overtakes spread and closures, with the forward P/E at23andthe trailing 12-month P/E at30. Even if we get those record earnings—an expected 23 over a year away—justifying that much of a premium is unprecedented. Maybe the new post-COVID-19economy couldjustify it, and maybe crunching the numbers has made me focus too much on the underlying data, so I leave it to the market to justify and set the level. From the Feb.19, 2020, pre-COVID-19 closing high (3,386.15), the S&P 500 has posted 20 new closing highs (33 YTD, as it closed the year witha high, at 3,756.07; the eighth time since 1928 that a year has ended in a high), closing up 10.92% from the pre-COVID-19highand up 16.26% YTD(18.40% with dividends), after last year’s gain of 28.8% (31.49%). All I can say is, it’s been a heck of a run.

ETF Transactions by U.S. Insurers in Q2 2020

INTRODUCTION

In May 2020, we published our annual study of ETF usage by U.S. insurance companies. The data for that analysis is only available annually. However, because of the recent market volatility, we wanted to analyze the use of ETFs by U.S. insurance companies prior to the next annual analysis. While holdings data is not available on a quarterly basis, we were able to analyze ETF transactions. In this analysis, we compare how ETF trading varied between the more volatile first quarter and the calmer second quarter.

ETF TRADES

In the first quarter of 2020, U.S. insurance companies traded USD 24.6 billion in ETFs. In the second quarter, that volume slowed down, but companies still traded USD 13.9 billion in ETFs. Combined, insurance companies traded USD 38.4 billion in the first half of 2020. At the end of 2019, insurance companies only held USD 31.2 billion in ETF assets.

Companies traded heavily during the latter part of the first quarter during the period of increased volatility related to COVID 19. Trading volume dropped considerably during the beginning of the second quarter, until a spike in late May and early June (see Exhibit 1).

ETF Transactions by U.S. Insurers 2020 Q2: Exhibit 1

Investment in Innovation: Opportunities for Potential Outperformance across the Market-Cap Spectrum

It is of no surprise to anyone following the markets of late that the returns of larger companies have generally fared better than their smaller brethren during the pandemic.  The extent of this dynamic was brought into sharp relief when looking at YTD total returns through May 29, 2020: the large-cap S&P 500® returned -4.97%; the S&P MidCap 400® returned -13.86%; and the S&P SmallCap 600® returned -20.81%.  In the small-cap segment, the Russell 2000 reflected the same story over this period with a return of -15.95%. 

Meanwhile, the equivalent market-cap segments of the S&P Kensho New Economies Composite Index, which seeks to capture the industries and innovation of the Fourth Industrial Revolution, have significantly outperformed their broad market peers by 3.96%, 9.35%, and a substantial 16.49%, respectively, over this same time period (see Exhibit 1).

Investment in Innovation: Opportunities for Potential Outperformance across the Market-Cap Spectrum: Exhibit 1

This persistent outperformance across market-cap segments may illustrate the positive impact of the security selection effect and underscores the benefits of a robust, disciplined, and transparent framework when investing in innovation and growth.

This commentary will discuss our approach to capturing the New Economies and explore how persistent this pattern has been over different time periods and weighting strategies.  Let’s start out with some context setting.

ETF Transactions by U.S. Insurers in Q1 2020

INTRODUCTION

In May 2020, we published our annual study of ETF usage by U.S. insurance companies. The data for that analysis is only available annually. However, because of the market volatility in the first quarter of 2020, we wanted to analyze the use of ETFs by U.S. insurance companies prior to the next annual analysis. While holdings data is not available on a quarterly basis, we were able to analyze ETF transactions. In Q1 2020, U.S. insurance companies increased their ETF usage by USD 4.1 billion, as well as the number of transactions.

ETF TRADES

In the first quarter of 2020, insurance companies traded USD 24.6 billion in ETFs (see Exhibit 1).  This amount is roughly on scale with the total holdings of USD 31.2 billion as of year-end 2019.   

ETF Transactions by U.S. Insurers 2020 Q1: Exhibit 1

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