Sustainable Opportunities in a Post-Pandemic World
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As the coronavirus pandemic reshapes markets and underlying economies, how should investors manage catastrophic risk with the need for upside growth? According to veteran portfolio manager Nick Henderson, the answer is grounded in sustainability – an approach rapidly gaining popularity for its inherent tilt toward quality, resilience and long-term capital appreciation.
For decades, advocates of responsible investing struggled against misperceptions of a performance penalty associated with their strategies. Ample research existed to the contrary; in fact, the data showed that firms with higher ESG scores tended to deliver better risk-adjusted returns over the long term. Yet despite the mounting evidence, some investors continued to believe that there was an unavoidable cost to prioritizing sustainability issues.
The market reaction to COVID-19 shone a spotlight on this myth. At the end of March, the MSCI World Index was down 4% over a 12-month rolling period, while the BMO Sustainable Opportunities Global Equity Strategy was positive at 2.5%.1 The strategy outperformed during the drawdown – and beat the benchmark over the longer term as well.
What a growing number of investors are beginning to recognize is that “sustainable opportunities” is really shorthand for a certain type of company: High-quality, growing businesses that are positioned to benefit from long-term, structural changes in the economy. As its portfolio manager, I fundamentally believe the strategy can go toe-to-toe against any other global equity fund, which is why we measure our performance against the broad world index rather than an ESG-specific composite.
Read more on the BMO Global Asset Management website, including:
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What we include, and what we don’t
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A closer look at the “G” in ESG
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A sea change in corporate attitudes
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A word to the wise
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