- January 21, 2021
• 5 min read
- Brief: Alternative Investments,
Manage your investing expectations in 2023—high single-digit returns might be outstanding in this slowing economy.
Get the latest in Research & Insights
Sign up to receive a weekly email summary of new articles posted to AMG Research & Insights.
2020 was not only marked by a raging global pandemic, but a whipsawing market, mass social-justice protests, and devastating weather events from hurricanes in the Gulf to raging wildfires across the West. According to NASA, 2020 vies with 2016 as the hottest year in recorded history.1
These events seem to have catalyzed a turning point for many investors. Video conferencing has existed for years, yet mobility restrictions had us all suddenly doing Zoom calls and organizing Houseparty app meet-ups, bringing forward years of future growth for these technologies.
Similarly, investors have had access to strategies screening by environmental, social and governance (ESG) criteria for years. Yet flows were tepid. But in 2020, according to Morningstar Manager Research,2global sustainable fund flows for the first three quarters already surpass those of prior years, suggesting a turning point in investor appetite for ESG-based investing.
DOES ESG INVESTING OUTPERFORM?
Morningstar (2020) theorizes that “the average outperformance of sustainable funds in the first quarter globally has also helped alleviate some investors’ concerns about a potential return trade-off in sustainable strategies.”
Like avocado toast and ride-sharing adoption, ESG investing growth has been attributed to Millennials. But Allianz research suggests that there is broad-based interest with 71% of Gen Xers and 69% of Boomers agreeing with 81% of Millennials that “ESG is not just an investment strategy to feel good about, but one that makes long-term financial sense.”3
The asset management community has responded to this interest by launching new products adhering to ESG investing principles, including 53 sustainable funds in the U.S. through the third quarter of 2020, according to Morningstar (2020).
At AMG, we believe the product development surge is generally positive. Today’s creative experiments to incorporate sustainability and investor values into a portfolio will expand the options available in the future. But time will tell.
When looking for an ESG manager, AMG expects them to meet all our traditional best-of-breed investment manager criteria as well as to be able to demonstrate a longstanding commitment to ESG investing. Digging deep into manager processes and track records will reveal whether firms have engaged in “greenwashing”—falsely claiming to invest based on sustainable criteria—or not.
WHAT IS ESG INVESTING?
AMG believes that investing along an ESG framework affords an opportunity to pursue financial goals, while considering environmental impact, social responsibility and positive corporate governance. Investing in sustainable companies with business models that support a more equitable society and a healthier environment will lead to financially positive results, we believe. Adding ESG criteria to analyzing securities can reduce risk—by improving the sustainability of a company’s business model—and improve returns—by focusing on products and services with long-term secular tailwinds.
For AMG clients interested in sustainable investing, we have worked hard to identify best-in-breed external ESG managers in taxable bonds and global equity asset classes to implement this approach. For more details on how we select ESG managers, please read ourSustainable Investing at AMGwhitepaper.
Additionally, our internally managed AMG Capital Management (ACM) Sustainable Global Dividend Strategy, seeks to provide investors with a value-oriented portfolio of global stocks. The ACM Sustainable Global Dividend Strategy produces both attractive current dividend yield and expected divided growth while applying ESG criteria to assess non-traditional business risk that could have an impact on a company’s future profitability.
Lastly, our private markets investment team manages direct investments and investments in other funds that target fast-growing, innovative new technologies addressing the great environmental challenges we face. Since many of the best sustainable investments are not yet traded on the public markets, if you wish to participate in the next breakthrough climate technology, you will likely need the expertise and industry connections of a firm like AMG to diligence the best venture capital opportunities.4
WHAT “A BETTER WAY TO WEALTH” MEANS TO US
AMG is the leader in financial services for individuals and organizations who seek and expect tailored service and results. From working one-on-one with each of our clients, we know how very personal their planning and investment decisions are. Each of our clients defines “wealth” in their own way. Depending on their age and circ*mstances, some are thinking of their lifestyle while others are thinking of their legacy, how they impact the next generations and their community.
We’re excited to be able to work with interested clients to implement the appropriate sustainable investing strategy for them. We believe this not only allows our clients to blend their environmental and social values with their investment goals but also to take advantage of the demonstrable positive impact of considering long-term sustainability and social stakeholders in generating an attractive financial return.
As always, please reach out to your wealth advisor orContact Usto speak about our approach to working with you on a personalized financial plan and integrated investment strategy so that you can live your best financial life.
Notes
National Aeronautics and Space Administration (2021, January 19)2020 Tied for Warmest Year on Record, NASA Analysis Shows.https://www.nasa.gov/feature/2020-tied-for-warmest-year-on-record-nasa-analysis-shows
Morningstar Manager Research. (2020, October)Global Sustainable Fund Flows: Q3 2020 in Review.https://www.morningstar.com/content/dam/marketing/shared/pdfs/Research/Global_Sustainable_Fund_Flows_Q3_2020.pdf
Allianz Life Insurance Company of North America (2019, August)Environmental, social, and governance (ESG) investing is not just a millennial trend.https://www.allianzlife.com/-/media/files/allianz/pdfs/newsroom/ent-3368-n.pdf
Harder, A. (2021, January 14)VC investments into climate change technology reach record high. Axios.https://www.axios.com/vc-investments-climate-change-c57f6f3e-0644-4c8f-80fb-b700a641230d.html
This information is for general information use only. It is not tailored to any specific situation, is not intended to be investment, tax, financial, legal, or other advice and should not be relied on as such. AMG’s opinions are subject to change without notice, and this report may not be updated to reflect changes in opinion. Forecasts, estimates, and certain other information contained herein are based on proprietary research and should not be considered investment advice or a recommendation to buy, sell or hold any particular security, strategy, or investment product.
See All
Related Articles
Tips for Helping Your Kids Buy a First Home
Brace for Slowdown This Year, Then a Rebound
Court Case Could Stymie Push for Wealth Tax
Get the latest in Research & Insights
Sign up to receive a weekly email summary of new articles posted to AMG Research & Insights.
I bring a wealth of expertise in alternative investments, particularly in the context of the January 21, 2021, article discussing managing investing expectations in 2023. My knowledge extends across various investment strategies, with a focus on environmental, social, and governance (ESG) criteria.
The article highlights the impact of significant events in 2020, including the global pandemic, market volatility, social justice protests, and extreme weather events. My understanding of these factors positions me to analyze their influence on investor behavior and market trends. Additionally, my grasp of NASA's data, which indicates 2020 as one of the hottest years on record, allows me to contextualize environmental concerns in the investment landscape.
The piece underscores the surge in interest in ESG-based investing, and I'm well-versed in Morningstar's insights on the global sustainable fund flows, providing a nuanced understanding of the turning point in investor appetite for ESG strategies. My expertise goes beyond attributing ESG investing growth solely to Millennials, as I can draw on Allianz research, demonstrating that there is broad-based interest across generations.
Furthermore, the article touches on the performance of sustainable funds, referencing Morningstar's analysis, and I can elaborate on the factors contributing to the average outperformance of these funds in the first quarter globally.
The concept of "greenwashing" is introduced, and I can delve into the nuances of how asset managers can demonstrate a genuine commitment to ESG principles, helping investors distinguish between authentic ESG strategies and mere claims.
The article delves into what ESG investing entails, and I can provide a comprehensive explanation of how investing along an ESG framework aligns with financial goals while considering environmental impact, social responsibility, and corporate governance. I am well-equipped to discuss the potential benefits, including risk reduction and improved returns, associated with adding ESG criteria to securities analysis.
Specifically, the mention of AMG's approach to sustainable investing, the identification of best-in-breed external ESG managers, and the internally managed AMG Capital Management (ACM) Sustainable Global Dividend Strategy align with my in-depth understanding of sustainable investment strategies.
Finally, the article introduces private markets investments and the importance of expertise in evaluating venture capital opportunities related to breakthrough climate technology. My knowledge extends to the challenges and opportunities in private markets, particularly in the context of environmental innovation.
In conclusion, my expertise positions me to provide a detailed analysis of the concepts and trends discussed in the article, offering valuable insights and a deeper understanding of the evolving landscape of alternative investments and ESG-focused strategies.
