Advisors are receiving more and more requests from their clients interested in ESG (Environment, Social and Governance) and Socially Responsible Investment (SRI). ESG and SRI investing can no longer be considered a fad, it is here to stay. However, the ESG investment landscape can be confusing and it may not be clear where to start or how to provide reliable investment solutions to clients. By combining a tactical and global multi-asset approach with ESG-focused investments, advisors and their clients can achieve their investment goals and invest for the greater good.
In the past, it was not easy to invest in a way that generated returns and had a positive impact on the environment and society. On the one hand, trying to create a portfolio of individual stocks of companies that could be seen as ESG-focused took an enormous amount of labor and capital. In addition, the performance of more ESG-oriented investments did not appear to keep pace with that of the market as a whole. However, over time, the ESG-focused exchange-traded funds (ETFs) market has shown steady growth and deep maturity, helping to bring ESG investing into the mainstream. While an ETF may seem like a blunt object for obtaining specific ESG focus, ETFs typically embody improvements in many, if not all, ESG categories over their parent non-ESG index.
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ESG investment methodology
At 3EDGE, we have developed a methodology to assess and select ESG ETFs to use in our suite of tactical ESG offerings. 3EDGE ESG solutions offer the same proven tactical approach as other 3EDGE investment solutions – actively adjusting client portfolios between risk and risk, based on our market outlook. We also monitor the ESG scores of the ETFs we use in our strategies to help invest in socially responsible, inclusive and sustainability-focused companies. The 3EDGE ESG strategy and the aggressive ESG strategy allow investors to put their capital to work in a manner consistent with their values and with the confidence of working with a company recognized as a leader in the creation of tactical multi-asset portfolios.
The 3EDGE approach to sustainable and impact investing
3EDGE’s ESG strategies aim to generate both an attractive risk-adjusted return as well as a positive long-term impact on society, the environment and the behavior of companies. 3EDGE ESG strategies also focus on reducing the global carbon footprint by investing in ETFs with a lower weighted average carbon intensity measured in tonnes of carbon dioxide produced per million dollars of sales.
When constructing ESG portfolios, the 3EDGE investment committee analyzes ESG-focused index ETFs using rankings established by third-party data providers such as MSCI. Increased and improved data from individual companies and better research and analysis capabilities now provide more robust, quantitative, objective and financially relevant information on ESG issues important to investors. The ESG score of an ETF represents a balance between all the environmental, social and governance scores of each company. 3EDGE ESG strategies look for ETFs with the highest overall ESG score combined with the lowest / lowest carbon footprint measured in weighted average tonnes of carbon dioxide emitted by each company per million dollars in sales.
A hypothetical investment of $ 500,000 ^ in the 3EDGE ESG strategy represents an approximate annual decrease of 42 tonnes of carbon dioxide equivalents from the 3EDGE ESG multi-asset benchmark representing a decrease of 27%. This decrease is roughly equivalent to:
3EDGE ESG strategies provide investors with access to widely diversified and tactically managed portfolios of ESG-focused ETFs that seek attractive risk-adjusted returns over full market cycles while also having a significant positive impact on environmental, social and governance issues. A clear advantage of the 3EDGE tactical approach to ESG investing is that it offers advisors and their clients a transparent, simple and straightforward solution to a rapidly growing area of interest. This is a win-win potential for advisors and their clients, as ESG investing continues to gain traction among individual investors.
3EDGE Asset Management, LP, is a multi-asset investment management firm serving institutional investors, the advisor market and private clients. 3EDGE strategies act as tactical diversifiers, seeking to generate consistent, long-term returns on investment, regardless of market conditions, while seeking to manage downside risks.
The main investment vehicles used in building the portfolio are exchange traded index funds (ETFs). The investment research process is guided by the company’s proprietary global capital markets model. The model is tested under the widest variety of economic and market conditions and translates decades of research and investment experience into a system of causal rules and algorithms to describe the behavior of global financial markets. 3EDGE offers a comprehensive suite of solutions, each with a target rate of return and risk parameters, to seek to meet different investor objectives. Of course, investing involves risk and the potential loss of your investment. There is no guarantee that a target return will be achieved.
Contact 3EDGE Phone: 844.903.3343
^ The MSCI ESG rating measures the resilience of portfolios to long-term ESG risks and opportunities. The best rated portfolios are made up of issuers with advanced or improved management of the main ESG risks. ESG ratings range from leading (AAA, AA), medium (A, BBB, BB) to lagging (B, CCC) and are a direct mapping of ESG quality scores. The MSCI ESG Quality Score measures the ability of the underlying holdings to manage the main medium and long-term risks and opportunities arising from environmental, social and governance factors. The weighted average carbon intensity of a portfolio is obtained by calculating the carbon intensity (greenhouse gas emissions / sales in millions of dollars) for each company in the portfolio and calculating the weighted average by weight of the portfolio. Source: ETFdb.com and ETF.com. The strategy score, the table of carbon dioxide emissions equivalents, the MSCI ESG quality score and the carbon intensity score are calculated for the strategy’s holdings as of 06/30/2021. To learn more about MSCI ESG ratings https://www.msci.com/our-solutions/esg-investing/esg-ratings. The hypothetical emissions reduction figures equivalent to the portfolio were estimated using the Environmental Protection Agency (EPA) Greenhouse Gas Equivalency Calculator (https://www.epa.gov/energy/ green¬house-gas-equivalencies-calculator). The 3EDGE ESG Multi-Asset benchmark is the Financial Times Stock Exchange’s global government bond index at 45% WGBI / 45% Morgan Stanley Capital International MSCI ACWI TR global all-country index / 10% Bloomberg Commodity BCOMTR total return.
This document is provided to current and potential clients of 3EDGE ESG strategies for informational purposes only. It does not constitute an offer to buy or sell securities. The information provided is not intended to provide personal investment advice and does not take into account the investment objectives and financial resources of the beneficiary. Investments in securities including common stocks, fixed income securities, commodities, ETNs and ETFs involve a risk of loss that investors should be prepared to bear. Past performance does not represent future results.