In December I went to Switzerland in search of alternatives in the commodity space and visited fund managers in Zurich and Geneva. Switzerland maintains an aura of prosperity and efficiency. No one appeared to be in a rush in either of the two cities, walking and driving are conducted at a very leisurely pace by London standards. Trains and taxi’s were expensive but everything left on time, arrived on time and there was never any rush.
Sustainable investments
The purpose of my visit was to meet Sustainable Asset Management (SAM) and Pictet Asset Management (PAM) both of whom have a range of commodity funds that are run with a sustainable mandate. The Swiss are more advanced in their philosophy towards commodity and sustainable investing than many of the managers in the UK. For example, for over 10 years SAM has been compiling their own database on companies in the sustainable universe through a detailed questionnaire. They use this to adjust their valuations of companies, as they believe long term sustainability helps drive long term performance.
Pictet take a different approach. They work with and exclude companies blacklisted by the Norwegian Governments’ Sovereign Wealth fund, which is a well respected proponent of ethical investing, as well as Ethos who are a group that help Swiss based Pension Funds actively engage with companies as shareholders. They are also signatories of the UN Principles for Responsible Investment (UNPRI). In both cases the active engagement with individual companies means that these funds are best described as sustainable, rather than Ethical which focuses on exclusion.
Focused Investments
Both fund managers sector focus on very specific areas e.g. Water, Timber, Clean Energy or Modern Materials. Whilst both managers have funds that pool these individual sub sectors, SAM has a Climate Change fund whilst Pictet have a fund called Environmental Megatrend, these are nevertheless still quite restricted areas for investment.
This focus has leads to several interesting effects. Firstly, returns on these investments tend to be more volatile as there is a higher degree of correlation between the stocks than in more traditional funds. Second, the narrower investment universe allows a more focused research team, for example having an analyst with a PhD is Water Treatment Chemistry working on a Water fund. There is also a greater use of academics on a consulting basis. Investors should be careful not to be seduced by such resources as they must ultimately be convinced by the investment case of the sector and not ignore the specific nature of the risk they are taking, but nevertheless these are different propositions from those that we often see.
We will be reviewing funds in the sustainability sector in the New Year and outlining the options available for investors .