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31 Jan 2020 – Insights

New sustainable fund hunting excess return from global equities

A new and unique Danske Invest fund strives to harvest excess return via systematic data analysis while operating under strict sustainability criteria.

Investment customers in Danske Bank can now place money in a new, global equity fund that is quite unique from a Danish perspective. The fund Danske Invest SICAV Global Sustainable 130/30 combines data-driven equity analysis, advanced investment tools and strict sustainability criteria while aiming to generate an annual excess return relative to the equity market in general.

Investments in the fund will be managed by the recognised US capital manager AQR, who have received a great number of awards over the years for their scientific research into the financial markets.

In our opinion, AQR is among the global leaders within systematic data analysis of the equity market, which they use to identify solid, quality companies that are attractively priced and have a positive momentum. This is where investors have historically harvested an excess return relative to the general equity market.

John Poulsen

Head of investments, Danske Bank



Focus on sustainability
At the same time, the fund’s portfolio managers have a strong focus on sustainability and avoid companies that do not have a satisfactory ESG (Environmental, Social & Governance) profile.

“AQR allots all companies an ESG rating on a scale from 0 to 10, where 10 is best, and the fund does not invest in companies with a rating of 2 or less,” explains John Poulsen.

Furthermore, the fund does not invest in companies working with controversial weapons, such as nuclear weapons or cluster bombs, or companies that derive a large share of their turnover from alcohol, tobacco, military equipment, pornography, gambling, thermal coal or tar sands.

“In practice, we expect that this will generally exclude the fund from investing in around 15% of companies in the fund’s investment universe – MSCI World Index,” says John Poulsen.




Greater freedoms
The construction of the fund’s portfolio is based on the so-called 130/30 strategy, which allows a greater degree of freedom for investments than in a traditional equity fund. The strategy adds both an element of gearing to the fund – in other words, investing borrowed money – and the opportunity to go short in equities, ie, invest in selected equity prices falling.

“The combination of gearing and short equity positions means the fund can both increase investments in equities the portfolio managers see the most attractive return potential in, and short equities they expect will perform worst,” says John Poulsen.

Key risks

According to John Poulsen, the fund could, for example, make up a share of the global equities in a portfolio of investments, as the fund can help diversify risk and thus strengthen the portfolio.

However, investors should be aware that while the fund strives to deliver an excess return, the fund can of course give a poorer return than the equity market in general. This will be the case if portfolio managers are unable to identify the right equities for the portfolio, or if historical price patterns do not repeat in the future. Furthermore, there is always a significant risk with investing in equities.

The contents of this publication have been prepared for information purposes only and do not constitute investment advice. You should always consult a professional advisor if you are considering making an investment to ascertain whether a particular investment fits with your investment profile. Historical return is not a reliable indicator of future return.