The outlook for actively managed and environmental, social, and governance exchange traded funds in 2021 is bright, but put those two concepts together and the result could be something truly compelling.
More investors are embracing environmental, social, and governance (ESG) principles, prompting active managers to enhance their credibility on that front.
Actively managed funds are experiencing a renaissance of sorts, and with the industry looking for new frontiers that are conducive to this management, environmental, social and governance (ESG) investing stands out as a viable option.
“The asset management industry is consolidating, which seems logical in the light of the rising costs associated with running an asset management company – compliance, regulation, trading, distribution, research, ESG, impact and the list continues,” writes Jesper Kirstein for IPE Magazine. “At the same time, the consolidation among investors is necessitating asset management counterparts to handle larger flows and deliver ‘best-in-class’ services. This trend will probably continue, and the large asset managers are perfectly situated to deliver benchmark results or enhanced management inclusive of the required ESG services in terms of exclusion and engagement.”
Good Time to Combine ESG, Active
Regulators and lawmakers are beginning to step up. The European Union will set up performance thresholds from 2021 onward. Minimum safeguards will investors and companies transition into a greener economy. Portfolio managers of ESG funds in Europe will be required to explain how and to what extent companies are following sustainable steps. Data confirm getting active with ESG pays off.
Interest in sustainable investments has been ticking higher. According to US SIF, the Forum for Sustainable and Responsible Investment that U.S.-domiciled assets under management using sustainable investing strategies surged to $17.1 trillion at the start of 2020 from $12 trillion at the start of 2018, an increase of 42%.
“Of course, ESG and impact investing will continue to dominate the asset management industry, and all managers must adapt to this,” notes Kirstein. “What will shape tomorrow’s offerings, and how do managers position themselves? Exclusion and ESG integration is today considered to be plain vanilla, and managers will have to prove how the two factors add to performance. Doing it as such is not sufficient; doing it well will be a competitive edge. In fact, ESG will become another discipline in active management and an understanding of ESG will simply enhance managers’ ability to identify the best issues in a portfolio.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.