Exchange-traded funds focusing on environmental, social and governance themes have been one of the fastest-growing market segments in a couple of years, but so far have yet to reach the acceleration in Asia as they have in the U.S. and EU, until now. The most recent data from the Asian Pacific has more than 1.5x as many funds starting in the first half of 2021 than all of 2020. The asset flows are even more staggering. Inflows since in the first half of 2021 are 10x larger than all of 2016, and they have almost already reached 2020’s $2bn. The standout countries are Australie, China, and Taiwan which comprise over 85% of all the ESG ETF assets. Moreover, these trends are expected to continue with more advantages on transparency and liquidity than other market segments.
FINSUM: These are astounding numbers for ESG growth, and faster-growing economies might not have the incoming restrictions to ESG the US could be facing.
AQR is one of the leading quant funds, and they had a difficult 2021, but they are bouncing back big with a new idea in ESG. Their new Sustainable Long-Short Equity Carbon Aware Fund will pick U.S. and foreign equity on a variety of ESG criteria with a net-zero carbon emissions target, but it will also short funds that aren’t meeting ESG standards. Most funds have stayed only on the positive end of things but CEO Cliff Asness believes shorts selling is a key tool that can be leveraged to reduce carbon emissions. Asness will be a portfolio manager on the funds, and his unique perspective on ESG will be critical in how the fund performs in the upcoming years.
FINSUM: Value quant funds like ESG suffered the last two years relative to the market but so far in 2021 AQR has seen huge inflows and its ESG strategy is part of that.
Word had spread weeks ago that Franklin was in a position to acquire O’Shaughnessy Asset Management (OSAM), but that deal has finalized this week. OSAM will be a bolster an already growing separately managed accounts segment which stands at $130 billion AUM already. However, the big headline is the value-based investing and custom indexing that OSAM provides. The custom indexing platform OSAM owns known as Canvas has grown rapidly and doubled its aum in the last year hitting $2 billion.
FINSUM: This is another headliner deal in direct-indexing. What’s most notable is that many of the deals are coming through acquisitions rather than newer ones originating within the firms themselves.
ARK Innovation is one of the leading model portfolios and has become a household name in the last year, but it looks like the bubble has finally popped or at least deflated. Huge losses in big holders like Zoom, Teladoc Health, and Roku are down over 30% and the only thing keeping the fund floating has been a stellar Tesla performance. This has many investors worried about the broader market because equity prices are inflated. Furthermore, the gap between large-cap growth stocks and smaller caps is as wide as it has been since 2000. Maybe this means an equity bubble could pop, but it could just mean small caps have more value now than ever.
FINSUM: High P/E ratios should have investors cautious at the very least. If the Fed threatens to huff and puff anymore the whole house could come down!
Teradata, a leader in cloud computing made some big predictions for the Financial world in 2022. The biggest change is more AI adoption and software development in banking. Branches have closed in Europe and America and supplementing this with AI will be key. They also anticipate widespread adoption of the cloud in banking, but this could come with systemic risks as this is a new frontier for a small number of firms and failure could be catastrophic. Finally, regulators are going to take a step up in 2022 when it comes to ESG. These changes will mean more data analytics and statistics. Banks and companies will work independently to provide emissions data that can satisfy regulators as to their ESG status.
FINSUM: The cloud brings great efficiency for portfolio software moving forward; a one-stop-shop for lots of metrics and management tools!
ESG has been one of the fastest-growing stories of 2021 and has taken over every other headline with it. However, things could be shifting in 2022 for ESG, and fund leaders see things shifting for ESG in 2022. The first big area of change will be talent and analysts more catered to addressing and differentiating ESG content. Investors will also face greater scrutiny from compliance officials and regulators, and language will be more cautious moving forwarded. Finally, investors themselves will definitely demand more than just a green label, but rather specifics of how companies are meeting and leading the way in ESG.
FINSUM: If 2021 was the year of explosion in ESG and impact investing, 2022 will be marked by how regulators tightened the reigns on this explosive industry.