Where are Advisors on the ESG Adoption Curve?

Posted by Dana Funds Investment Team on Sep 2, 2020 4:02:33 PM

To say ESG has hit an inflection point would be putting it mildly. Flows into sustainable funds quadrupled to $21.4 billion in 2019. The first half of 2020 has nearly eclipsed that mark, with flows totaling $20.9 billion, according to Morningstar figures. But amid this surging demand, where do advisors fit?

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Should Your Client’s ESG Fund Be a Core Equity Holding?

Posted by Dana Funds Investment Team on Aug 19, 2020 4:02:33 PM

As client demand for ESG strategies grows, advisors have a tough job ahead of them: finding a strategy that is suitable as a core equity holding. Without proper due diligence on fund construction, a strategy used as a core holding may expose a client to unintended risks.

The details are all in the portfolio construction process.

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Advisors Should Ask: Is My Investment Manager a Partner?

Posted by Dana Funds Investment Team on Aug 6, 2020 3:03:59 PM

The financial crisis was painful for anyone working on Wall Street, but the period gets credit for improving at least one industry dynamic: The bar for effective communication from an asset manager has been significantly raised.

As markets plummeted, advisors, consultants, investment committees and other key fund decision makers demanded dialogue from their portfolio managers about the market collapse and what they planned to do going forward. The demand for increased communication continues today, and is an industry trend we applaud.

Advisors and consultants deserve shared insight from their investment managers, and an open forum for communication. In short, they deserve true partnership. We believe boutique asset managers are best positioned to deliver the partnership clients deserve.

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Seven ESG Due Diligence Questions Every Advisor Should Ask

Posted by Dana Funds Investment Team on Jul 30, 2020 8:52:30 PM

As investor interest in ESG grows, so too are the number of ESG strategies to choose from. Already, 23 ESG funds have launched in 2020, and more than 20 others are in registration at the SEC, according to Morningstar.¹ This marks the sixth straight year of more than 20 launches.

With more fund launches, due diligence isn’t getting any easier. We believe one way advisors and other allocators can help their clients find the right strategy is to ask whether they want a fund that is directly engaging businesses to improve corporate policy around ESG issues.

Many ESG funds do not engage management teams on policies, but instead rely on ESG ratings to screen out non-ESG friendly companies and include companies with better ratings. That may well be enough for some clients.

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Amid ESG Fund Proliferation, Advisors Must Be Mindful of Fit

Posted by Dana Funds Investment Team on Jul 9, 2020 11:12:14 AM

ESG interest is growing and as asset flows follow, so too are the number of strategies dedicated to the space. For investment advisors, that makes the job of matching client objectives with the right strategy increasingly difficult.

In a recent Q&A session, Dana portfolio managers touched on the issue, and where their own ESG fund may – or may not – fit within a portfolio. A brief excerpt from the interview explains:

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Style Boxes Pose Pitfalls in Post-Pandemic Investment Landscape

Posted by Dana Funds Investment Team on Jun 3, 2020 3:50:36 PM

Growth or value? It’s a question advisors and allocators ponder at every potential turning point in the market cycle. But as the world emerges from a pandemic-induced lockdown, the new investment environment may favor neither.

Instead, we believe heavy tilts toward either style box could punish investors in the coming quarters. Here’s the short case for why:

Scarcity of Growth Has Created a Crowding Effect Among Growth Stocks

So far this year, growth has outperformed value substantially. If the Russell 1000 Growth and Russell 1000 Value Index ended the year where they were at in mid-May, the growth index would have outperformed its value counterpart by the widest level in any year since 1999.¹

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Explaining the Disconnect Between Stocks and the Economy

Posted by Dana Funds Investment Team on May 27, 2020 4:34:57 PM

In recent conversations with clients, we are getting fewer questions about our economic outlook. Many of our clients are themselves business owners and have already felt the pandemic’s economic pinch firsthand. They don’t need investors to explain the fear gripping Main Street. What puzzles them is how the stock market could be so at odds with the economic gloom.

While entire industries are on the sideline during the pandemic and the unemployment rate continues to climb, stocks have recovered much (though not all) of March’s losses. So, what’s behind the rally that seems so out of sync? In short, we think the market is confident about the safety net the Fed and the government has provided. Given the size and scope of that safety net, markets are already looking ahead to when the quarantine ends.

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Top-Heavy & Troubling: S&P 500 Bears Extreme Concentration Risk

Posted by Dana Funds Investment Team on May 21, 2020 11:10:00 AM

The S&P 500 bears an extreme risk: too few stocks account for too much of its weight. The index is experiencing extreme concentration risk not seen in the last 30 years, with its five largest stocks now accounting for more than 20% of the entire index.

The chart below shows just how out of balance the weightings of the largest S&P 500 stocks have become. Currently, the total index weight of the five largest holdings is more than five standard deviations1 above normal.

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Clearing Up the ABCs of ESG

Posted by Dana Funds Investment Team on May 7, 2020 5:33:28 PM

While ESG interest is undoubtedly on the rise, the category hasn’t reached its full growth potential. One issue potentially holding it back? Clarity.

An October 2019 report from the Institute of International Finance1 found that financial firms are using nearly 80 different terms to describe various forms of sustainable investing. As the report describes, this is creating confusion for would-be investors:

“At best, this confusion makes it hard to compare investment products and for clients to understand the differences in offerings,” the report states. “At worst, it facilitates greenwashing—intentionally misleading investors or giving them a false impression about how well their investments are aligned with their sustainability goals.”

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ESG: For The Record

Posted by Dana Funds Investment Team on Nov 22, 2019 9:38:11 AM

On November 13th the Wall Street Journal published an article entitled “A Socially Responsible Strategy Can Be Tricky” that largely took to task Environmental, Social and Governance (ESG) investing.  Though the author rightly identifies the subjective, and at times confusing, nature of ESG criteria standards (something Dana has previously discussed), the majority of the article is a somewhat cynical view of ESG investing as a worthwhile economic endeavor.

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The Dana Funds are distributed by Ultimus Fund Distributors, LLC. There is no affiliation between Ultimus Fund Distributors, LLC. and the firms referenced in this blog post.