Sustainability is increasingly higher on the agenda for investors, passive investing is gaining importance, and asset management is becoming increasingly more digital – these are the themes to help to determine and steer the fund market today.

Theme 1: ESG

Sustainability is everywhere

Sustainability has become an important parameter on both the demand supply sides of the market. At the same time, the methodological quality of ESG valuations (Environmental, Social and Governance) is increasing as well, says Alex Zuiderwijk, Senior Portfolio Manager Sustainable Equity at NN Investment Partners. ‘For example, next to the ESG policy score, sustainalytics now also takes into account exposure. A positive evolution; because in doing so, you also pay a lot more attention to the sustainability of business models. This makes sustainability even more clearly testable.’

Climate opportunities with fixed income

Green bonds offer investors the interesting advantage that they only invest in green projects, while the credit risk, just as with traditional bonds, remains linked to the issuer and not to the project, explains Anouk Slock, SRI/ESG specialist at Degroof Petercam Asset Management. Although the market has seen significant growth over recent years, green bonds represent not even one percent of the total bonds market. ‘In addition, the universe of green bonds holds some deviating and uncertain characteristics compared to the traditional bonds markets,’ says Ronald Van Steenweghen, Fixed Income Portfolio Manager at DPAM. ‘That’s also why we opt for bonds of companies that deliver innovative services and products in amongst others recycling and energy efficiency (climate enablers). We also choose for companies or governments that make great efforts towards lower emissions (climate challengers).’

Theme 2: Passive investing gains importance

Passive investing and ESG

The demand to integrate environmental aspects when it comes to passive investing has increased significantly over recent years.  ‘Already since 2008, we have been managing assets that are linked to a low carbon index,’ says Isabelle Bourcier of BNP Paribas Asset Management. ‘Important to know is that an index, just like an active fund, can adapt to new sustainability aspects and the available data. Today, we can even work out tailored solutions for investors in order to integrate specific ESG criteria.’

No trend, but transformation

ESG is not a trend, it is a transformation, says François Millet, Head of Product Line Management – ETF & Indexing at Lyxor ETF. ‘Increasingly, investors want to make a positive contribution to the environment and society through their investments. In addition, the regulations are also steering in this direction.’ For example, just think of the Action Plan of the European Commission to finance sustainable growth. Passive investing is at the heart of the ESG transformation, concludes Millet. ‘As a result of the low management costs, large spreads and transparency, passively managed ESG funds are often more accessible than actively managed variants, while thanks to the right data sources, they achieve the same investment targets. They democratise ESG, with a large impact on our society.’

Theme 3: Asset Management get more digital

FinTech on the rise

‘Digitalisation is not a challenge nor a goal, but a means to work more cost-efficient,’ BEAMA chairman Marnix Arickx pointed out during his FIF speech. Because costs are the Achilles heel of every funds distribution model. When asset managers increase their cost efficiency through innovative digital solutions, both they and their clients benefit from this. Over the coming years, digitalisation will cause a landslide in the fund industry. And this will go in all directions: from robot advice to automated tasks and blockchain. Digitalisation – or the lack thereof – also threatens to push players out of market. Because on the one hand, you have to invest in digitalisation, and on the other hand, you have to give sufficient attention to the personal relationship with clients. It comes down to finding a balance between the two – or making choices.

Pictures: ©Marco Mertens