Market Insights

For advisors, having the option to sit down and speak with a client about a topic that is important to them, but not strictly related to their investment performance, can be a very powerful tool. This is one of the benefits of having a strong Environmental, Social, and Governance (ESG) capability, especially since younger investors and women – two demographics quickly accumulating wealth – have shown such strong interest in the space. These robust conversations will also lead you to get to know your clients on a more personal level and potentially develop a level of trust that didn’t previously exist.

As RIAs put more and more thought into hiring managers who incorporate environmental, social and governance (ESG) concerns into their investment processes, the due diligence necessary to properly vet these managers has evolved.

Today there are many managers, even those not managing formal ESG strategies/funds, who claim to take ESG considerations into their investment processes.

Here are three questions you can ask as part of your due diligence:

Over the years, you may have noticed certain traits of successful equity managers, and certain other traits of managers that have disappointed. Here are some common characteristics we frequently see among equity money managers who have created strong long-term risk-adjusted track records for their clients.

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1. Limiting big drawdowns. As we mentioned in a previous blog (The Arithmetic Behind Drawdowns and Recoveries) bouncing back from a big drawdown can take years, and the arithmetic is not in your favor (i.e. It takes a 25% gain to recover from a 20% loss). Buying undervalued stocks can help with this; their multiples tend to be lower which can help limit the downside.

Financial Advisor recently wrote an article on environmental, social and governance (ESG) investment options in retirement plans. Turns out a lot of investors want it and not a lot of companies are meeting the demand.

According to a recent survey from Natixis Investment Managers, sixty-one percent of respondents said they would be more likely to contribute or increase contributions to their workplace retirement savings plan if there were more socially-responsible investments. Among plan participants not currently invested in ESG funds, only 13 percent said their company’s retirement plan offers ESG options.