KBI Global Investors has launched two strategies addressing ongoing core global equity exposure, and a focus on health and wellbeing-sector related opportunities.
The Global Core Sustainable Strategy is SFDR Article 9 compatible. There have been few such launches recently as the industry grapples with performance related challenges for such approaches, for example, caused by concentration concerns through exposure to US large cap technology stocks. Additionally, KBI sees that there have been some questionable alignments with the 17 UN Sustainable Development Goals (SDGs).
A key consideration among the institutional investors that its own Article 9 strategy targets lies in tracking error expectations. This has influenced its development in mind of maintaining tracking error of around 1.5-3%, while still taking a highly active approach to stock selection.
Geoff Blake, KBIGI CEO, commented: “The Article 9 category has been poorly serviced, so it has been a real conundrum for investors these past years, trying to identify an investment solution which delivers a high exposure to sustainability, excluding stocks with poor credentials, and a well diversified portfolio. Heightened volatility led many investors to divest. Others simply haven’t been able to find an Article 9 solution delivering on their impact requirements, and which reduce performance dispersion – a key objective for investors.”
Using the MSCI ACWI index as its benchmark, the strategy utilises data from MSCI to identify carbon intensity scores as part of its selection. Similar to the benchmark, the portfolio’s top 10 holdings exhibits a tilt towards technology, but it excludes several of the biggest US tech stocks, because of their poor alignment with UN SDGs and/or poor ESG scores.
For example, Nvidia is in, but Apple, Amazon, Alphabet and Meta are not.
On the Global Health & Wellbeing Strategy, KBIGI portfolio manager Craig Bonthron sees opportunity in factors such as demographics driving demand for healthcare services, but also because of ongoing relative undervaluations of stocks in the universe.
For example, the overall price/book value of the universe fell to -7% against the MSCI ACWI recently. Ratios on forward p/e along with ev/ebitda and ev/sales have collapsed since the peaks seen in the aftermath of the Covid pandemic, when demand for healthcare peaked. However, Bonthron argues that prices have derated excessively, offering significant opportunities on the theme.
Additionally, application of KBIGI’s proprietary revenue aligned sustainability score (RASS) methodology, which measures the percentage of revenue generated by portfolio holdings aligned with the UN SDGs, suggests a high, 95.1%, correlation regarding the strategy. KBIGI’s view is that such metrics are a useful tool for identifying potential to generate alpha.
