Stuart Trow
“QE has squashed factor investing for credit. If you are investment grade in euros you are at the party; if you are not, you are not.” Stuart Trow, European Bank for Reconstruction & Development
As more research comes to bear showing the interaction effect between factors and ESG or climate, I suspect we will see more and more of those dual objective strategies come to market. Trow: In credit, even if you are not actively targeting ESG, the people originating the loans determine what that universe looks like. Banks are much less prepared to arrange loans for coalminers. So even if you are not pursuing an ESG factor your universe has changed, perhaps more so in credit than in equity. Equity still exists, whereas with credit a loan physically might not exist because nobody’s lending to a coalminer. So things are improving towards ESG without necessarily opting to do it consciously. Scott: I read somewhere that a company issued a green bond and the price went through the roof. It shows that the demand is there. The thing is, if everyone’s buying green bonds is there a danger that they are overpriced? This, again, is a quandary for trustees. If you want a return and everyone is going for the same stocks it is not going to achieve a return, even though it’s something that is environmentally desirable. Is there a danger that there’s going to be a herding in demand for the best stocks? Leeuwen: The downside risk, especially for credit investors, is huge. We started more than 10 years ago with ESG as a filter to look at downside risk; now it has become far more important for trustees to show that they are doing something on sustainability. That can be for good reasons, but it could also be just
20 September 2019 portfolio institutional roundtable: Factor investing
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