At AlbaCore, we focus on the long-term. As one of Europe’s leading alternative credit specialists, we invest in private capital solutions, opportunistic and dislocated credit, and structured products.
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Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.
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Leader in active quantitative equities across Australian equities, global equities, emerging markets and global small companies.
Backed by a unique blend of research, portfolio construction and risk management, focused on uncovering original insights and translating them into investment strategies that are active and systematic, aiming to generate alpha.
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Specialists in equity portfolios in Asia Pacific, emerging markets, global and sustainable investment strategies
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Risk factors
This material is a financial promotion for the RQI Investors Quantitative Value Strategy intended for professional clients only in the UK, Switzerland, the EEA and elsewhere where lawful. Investing involves certain risks including:
- The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back significantly less than the original amount invested.
- Currency risk: the Fund invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Fund and could create losses.
- Derivative risk: derivatives are sensitive to changes in the value of the underlying asset(s) and/or the level of the rate(s) from which they derive their value. A small movement in the value of the assets or rates may result in gains or losses that are greater than the amount the Fund has invested in derivative transactions, which may have a significant impact on the value of the Fund.
- Credit risk: the issuers of bonds or similar investments that the Fund buys may get into financial difficulty and may not pay income or repay capital to the Fund when due.
- Emerging market risk: Emerging markets tend to be more sensitive to economic and political conditions than developed markets. Other factors include greater liquidity risk, restrictions on investment or transfer of assets, failed/delayed settlement and difficulties valuing securities.
- Smaller companies risk: investments in smaller companies may be riskier and more difficult to buy and sell than investments in larger companies.
- Single country / specific region risk: investing in a single country or specific region may be riskier than investing in a number of different countries or regions. Investing in a larger number of countries or regions helps spread risk.
Where featured, specific securities or companies are intended as an illustration of investment strategy only, and should not be construed as investment advice or a recommendation to buy or sell any security.
For a full description of the terms of investment and the risks please see the Prospectus and Key Information Document.
If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.
Leveraging our recent paper, ‘Reducing carbon intensity in portfolios: Better news than you think’, which analysed the investment impact of reducing carbon exposure versus the benchmark; we turn our attention to how we can reduce carbon risk in our Value strategies. This aligns with our commitment to reducing carbon exposure across our strategies.
How does climate risk affect a company’s fundamentals?
Climate risk is multi-faceted. This includes the risk of stranded assets, reduction in demand for a company’s product as consumers shift away from high carbon to low carbon products, as well as changing government regulations including harsher carbon pricing. Those companies generating higher carbon emissions face a greater risk of some of the issues listed above and a greater potential impact on their revenues and profitability. If we can find a measure of the portfolio’s exposure to this risk, as well as a company’s transition pathway, we can then more accurately construct our portfolios to achieve better potential long term outcomes for our clients.
Although it can be difficult to accurately price carbon risk, in part due to the limitations of data availability and the subjectivity associated with defining a company’s transition to net zero and assessing the credibility of these transition plans; one common and objective component of measuring climate risk exposure is to look at the current carbon emissions of the company.
We look at carbon intensity, defined as Scope 1 and 2 emissions (millions of tonnes of CO2 equivalent) per million dollars of revenue, as a metric to determine our exposure to carbon risk.
The impact of reducing carbon intensity in our Value portfolios
We ran a number of backtests that looked at the impact of reducing carbon intensity in our portfolios. These backtests showed that for reductions of up to 50%, the return and risk characteristics were relatively unchanged whilst still maintaining the Value characteristics of the strategy.
Why do we get these results? Carbon emissions are concentrated not only in a small number of industries but also around a small number of stocks within those industries. Carbon reduction can be achieved through stock selection within sectors, rather than changing sector allocations. By rotating to another stock with a similar alpha and risk profile but with a lower carbon exposure, a similar overall portfolio risk and return could be achieved whilst reducing the carbon exposure. Hence, we can achieve carbon intensity reductions through portfolio construction, rather than a targeted removal or exclusion of stocks resulting in active weights to industries remaining relatively constant.
The table below shows the simulated risk, return and value characteristics of our Value portfolios.
| Simulations Jan 2012 to June 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Australian Shares | Australian Small Companies | Global Shares | Emerging Markets Shares | |||||
| No carbon reduction | 30% carbon reduction | No carbon reduction | 30% carbon reduction | No carbon reduction | 30% carbon reduction | No carbon reduction | 30% carbon reduction | |
| Total Return (% p.a.) | 10.89 | 11.00 | 12.75 | 12.64 | 13.81 | 13.81 | 8.46 | 8.47 |
| Total Risk (%) | 13.97 | 13.99 | 16.08 | 16.20 | 11.17 | 11.16 | 11.91 | 11.91 |
| Book Yield | 0.55 | 0.55 | 0.76 | 0.77 | 0.65 | 0.65 | 0.92 | 0.92 |
| Dividend Yield | 0.04 | 0.04 | 0.04 | 0.04 | 0.03 | 0.03 | 0.04 | 0.04 |
| Cash Flow Yield | 0.10 | 0.10 | 0.12 | 0.12 | 0.16 | 0.16 | 0.22 | 0.22 |
*Note the carbon reduction for these simulations are versus our theoretical core portfolio to provide a context of any potential risk, return and portfolio characteristic impacts. The implementation is versus the live portfolio’s carbon intensity as at 30 June 2020. Source: RQI Investors (formerly known as Realindex), MSCI. Data as at 31 December 2022.
The value of an investment can fall as well as rise and you may not get back the original amount invested. There is a risk that the entire amount invested may be lost. Past performance is not a reliable indicator of future results. First Sentier Investors makes no representation or warranties as to the accuracy or completeness of any past, estimated or simulated performance results contained herein, and further nothing contained herein shall be relied upon as a promise by, or representation by First Sentier Investors whether as to past or future performance results.
In practice: applying and implementing carbon reduction in Realindex Value portfolios
Having found that we could achieve the carbon reduction in our portfolios whilst still maintaining our Value characteristics and with very little impact on risk and return, we have set a 2025 target with a goal to reduce carbon intensity in our portfolios by 30%, relative to the carbon intensity of the portfolio as at 30 June 20201. We will be gradually implementing this reduction over the next 2.5 years to 31 December 2025. Pleasingly, a number of our portfolios are already below these levels given market movements and the impact of our signals2.
| Portfolio | Benchmark | |||||
|---|---|---|---|---|---|---|
| Carbon Intensity (tonnes/sales in AUD/USD) | Jun-20 | Dec-23 | % Change | Jun-20 | Dec-23 | % Change |
| Australian Shares (AUD) | 194.6 | 139.1 | -28.5% | 158.7 | 114.7 | -27.7% |
| Australian Small Companies (AUD) | 101.0 | 95.1 | -5.9% | 105.3 | 122.8 | 16.6% |
| Global (USD) | 255.2 | 140.0 | -45.1% | 165.1 | 131.3 | -20.5% |
| Emerging Markets (USD) | 487.6 | 275.3 | -43.5% | 275.6 | 314.8 | 14.2% |
Source: RQI Investors (formerly known as Realindex), MSCI. Data as at 1 December 2023
1 The date of 30 June 2020 denotes the end of the previous financial year when we initially started looking at the carbon reduction in our portfolio and our potential net zero commitments.
2 The levels of carbon reduction currently achieved are not static and are subject to change between now and Dec 2025.
RQI Investors
January, 2024
Important information
This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should consider, with the assistance of a financial advisor, your individual investment needs, objectives and financial situation.
We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication. To the extent this material contains any measurements or data related to environmental, social and governance (ESG) factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in future if circumstances change.
To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.
To the extent this material contains any ESG related commitments or targets, such commitments or targets are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments and targets are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any commitments and targets set out in this material are continuously reviewed by the relevant investment teams and subject to change without notice.
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References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group. Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners, all of which are part of the First Sentier Investors group.
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To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested
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