Following an engaging two days of discussions and networking at the IM|Power Online conference, our Headline Partner at the event, Ninety One, have summarised the key messages from day 2.
Changing consumer trends post Covid-19 – how do products, structures and advice need to change?
The first session of day two was delivered by Holly Mackay, Founder and Chief Executive Officer, Boring Money and discussed Changing consumer trends post Covid-19 – how do products, structures and advice need to change?
What have British investors been up to?
- The DIY market was worth £227bn as of March, down 13.4% from Q4.
- General appetite remains high – customer numbers rose to all-time highs of 5.95 million by the end of March.
- But since then, confidence has been more mixed with cash assets on the rise.
Buying spree
- Amidst the fear, investors have found opportunities. First with ETFs as the easiest route in. Now, we’re seeing more sector-specific and region-specific cherry picking.
- The main areas they’ve been buying:
o Tech
o The US
o Passives
o Global funds
Income investing under threat
- Those looking for income are struggling. Huge need for product innovation to help people in or nearing retirement from relying on their depleting cash reserves.
- This is one of the main concerns of survey respondents.
Sustainability has arrived
- 25% more people are now considering sustainable funds as a direct impact from COVID-19.
- A big accelerator is the type of investor – now it’s not just the obvious candidates, but conservative investors who identify it as a logical and attractive way to invest.
- Advisors will come under more pressure to find suitable solutions.
Ninety One’s view
- We believe that income investing requires an active, bottom-up and research-led approach to find securities with strong and sustainable income.
- By investing sustainably, we aim to help people lead better lives in a better world.
- We aim to make a positive difference to people and the planet while delivering long-term investment returns.
Further reading from Ninety One
- Income strength and sustainability: a four-step approach capable of delivering returns underpinned by sustainable income
- Sporting chances: why sustainability will be key for companies in a post-pandemic world
- Webinar: The future of sustainable investing
ESG Integration
The next session, a panel discussion, discussed the topic of: ESG Integration - asset owners in search of a best practice in challenging times and its participants were: Thomas Jesch (moderator) – President, IFI (Investor Forum International, Neil Gregory – Chief Thought Leadership Officer, International Finance Corporation (IFC), and Michael Underhill – Chief Investment Officer, Capital Innovations, LLC.
What is impact investing?
- The deployment of capital with the specific intent of generating a financial return from a socially responsible perspective.
How big is the impact market?
- It’s growing, but still niche:
33% of global assets under management follow ESG frameworks,
1% (US$2tn) is invested with impact intent, c.0.25% (US$0.5tn) has the required measurement in place.
Private markets dominate but the role of impact investing in public markets is increasing
Where is demand for impact investments coming from?
- Accelerating among both institutional and retail investors with Europe leading the way
- Gen Z and Millennials have more intent to deploy capital in a meaningful way. Educating people about sustainable investing is crucial (and becoming easier thanks to improved data availability).
What about endowments and foundations?
- Until now, E&Fs’ main focus has been on making an impact through their programmes, not their portfolios.
- The combination of the coronavirus and Black Lives Matter has made everyone focus on the fact you can’t separate the two. Trustees are increasingly having to answer ESG/sustainability-related questions about their investment policies and allocations.
What areas of investment activity are especially suited to sustainable/impact approaches?
- Examples include real estate, infrastructure and natural resources: investments in these areas can contribute to global challenges (e.g., climate change) and create good jobs.
- Water and sustainable agriculture are closely aligned with the UN Sustainable Development Goals.
What about returns? Can you make better returns from ‘vice’ funds?
- “Skate to where the [ice hockey] puck is going, not to where the puck is!” Because that’s where sustainable future return streams will come from.
Ninety One’s view
- We believe that the privilege of investing our clients’ capital carries with it a responsibility to try to secure a sustainable future.
- By investing sustainably, we aim to help people lead better lives in a better world.
- We aim to make a positive difference to people and the planet while delivering long-term investment returns.
- We do so through a robust and comprehensive integration of sustainability analysis and research into our investment processes.
Further reading from Ninety One
- Income strength and sustainability: a four-step approach capable of delivering returns underpinned by sustainable income
- Sporting chances: why sustainability will be key for companies in a post-pandemic world
- Low-carbon lowdown: In a growth-challenged world, decarbonisation remains a powerful structural growth trend
Customer and stakeholder engagement in wealth management
A new era of customer and stakeholder engagement in wealth management: Building better digital relationships, was the next discussion on the agenda and it was talked through by Yuri Bender - Editor in Chief, Professional Wealth Management, Financial Times, Philip Watson - Head of Global Investment Lab and Chief Innovation Officer, Citi Private Bank, Kelli Keough - Head of Digital and Client Solutions for U.S. Wealth Management, JPMorgan Chase, Alois Pirker - Research Director, Wealth Management, Aite Group, April Rudin - Founder and President, The Rudin Group.
The pandemic has forced a shift to digital client engagement.
- It has been a testing time but those who had the infrastructure in place have been able to use it to their and their clients’ benefit
- Digital has evolved to not just surface client information but to build relationships – levelling the client-advisor relationship.
- Combined with market volatility, leading to increased client interest and more opportunities for engagement.
- However, the slower digital adopters have been on the back foot which could lead to reshuffling of clients.
Times of increased social change
- Brands are humanising their values and aligning to social change. Traditional values such as excess returns, cost and individual service, are increasingly being outweighed by wider environmental and social awareness.
- Affecting clients across all spectrums, not just Millennials.
What does the future hold?
- Primary goal remains around meeting clients’ long-term needs. No point innovating with AI or big data if the client doesn’t see the benefit.
- Technology requires time to evolve, learn and iterate to meet its purpose.
- Wealth managers must be in for the long-run and consider all parts of the chain; culture, data, processes, technology and the client.
- Continued education needed at both enterprise and user level around data.
- The duration of the pandemic has enabled permanent changes to take place around the use of digital.
Will we see big tech overtaking big banks and wealth managers?
- Organisations can keep pace through internal innovation, external partnerships with academia or fintechs, or through M&A.
- Digital allows traditional businesses to shift to the other end of the spectrum, such as Goldman Sachs launching Marcus.
- Big tech tends to dislike regulated industries which inhibits growth and innovation, particularly across jurisdictions.
- Distribution partnership; an asset manager providing the infrastructure behind a big tech companies’ reach is likely. Tech firms often have the data but lack the knowledge to interpret complex financial information like a traditional finance company could.
Ninety One’s view
- The COVID-19 pandemic has clearly accelerated the use of digital within client engagements
- In times of market volatility, investors must maintain a long-term approach
Further reading from Ninety One
- The digital economy and the future of work part of our Great Shutdown series assessing the medium-term impact of COVID-19
How sustainability will move from niche to core
An enlightening conversation on Sustainability and impact – moving from niche to core then took place with Deirdre Cooper - Portfolio Manager, Ninety One, Dana Barsky - Managing Director, COO and Head of External Partnerships, Impact Advisory and Finance, Credit Suisse.
Sustainable investing and performance
- Increasingly, investors see sustainability research as linked to alpha generation.
- In the coronavirus downturn and subsequent upswing, ESG investments have outperformed overall (though obviously individual funds vary).
Engagement
- Engagement is key for sustainable investors.
- Credit Suisse research suggests engagement with investee companies generates outperformance.
- But reporting on engagement too often lacks transparency.
The clean-energy transition
- Overall, the pandemic has not slowed the transition to a more sustainable economy.
- The regulatory drivers of decarbonisation have accelerated in Europe. The technology drivers are unchanged.
- It’s too early to say whether consumer habits will change meaningfully – keep an eye on the data to watch for tipping points.
Investor interest
- The pandemic has focused investors’ attention on ESG issues, and the fact that they are often interlinked.
- High-net-worth investors are becoming more interested in sustainable investments, especially the next generation.
- The world is still only investing 25% of what is needed to decarbonise the economy.
Action needed now
- Climate-related investment risks are substantial and often underestimated. Investors need to understand their exposure, and invest in the solutions to climate change.
- Among professional investors, every portfolio manager and analyst must be an ESG analyst – not least because ESG ratings and data is of variable quality.
Ninety One’s view
- Sustainability is at the core of the way Ninety One invests. ESG and sustainability considerations are integrated into every strategy.
- Ninety One also offers dedicated private impact vehicles, and two dedicated sustainability listed equity strategies. We seek to set a high bar for what qualifies as a sustainable strategy.
- All of Ninety One’s sustainable investments follow the TIME framework: Transparency, Impact, Measurement, Engagement.
Further reading from Ninety One
- Ninety One Global Environment Impact report
- Low-carbon lowdown: In a growth-challenged world, decarbonisation remains a powerful structural growth trend
- Webinar: The future of sustainable investing
The future is in our hands
Finally, The Future is in Our Hands, was the name of the closing keynote of the event, delivered by, Pippa Malmgren, Founder, DRPM Group.
Reasons to be optimistic
- All historical crises have been followed by recoveries. This time is no different.
- Central banks have lowered interest rates and flooded the system with ‘free money.’
- This crisis has been profoundly personal. People will be more willing to work hard. Many may lose their jobs, but that will lead to an entrepreneurial response. There will be a high turnover rate, and lots of failure, but the energy still matters.
Great Gatsby on steroids
- After the Spanish flu pandemic, there were two responses:
- Gatsby response – “So what? Let me live my life as I please!”
- Grapes of wrath – times will be tough from here
- This time, there will be more capital and more technology at our fingertips to make this a ‘Gatsby on steroids’ recovery.
Inflation
- No one can imagine inflation because they see depression coming. I’m in the Warren Buffet and Louis Bacon camp that it is coming.
‘Glocalisation’
- Re-localisation of production is already a huge trend – China not the cheapest or highest quality production hub anymore. It will be ‘all jobs go to China’ to ‘all jobs go to everywhere’.
Investment opportunities
- Unbelievable things are happening.
- ESG and technology are primed to increase the value of investments. Through my smartphone, I’m able to see the mine I’m invested in via an app. Investors can say “either you fix this, or we don’t invest” – there will be a lot more of this to come.
- Finally, broken assets will be the next big opportunity. Distressed companies will need investors’ help and I expect this to be a growth area from here.
Ninety One’s view
- We believe there are many compelling opportunities for medium-term investors from here, but the outlook is far from certain.
- The pandemic has accelerated many underlying trends already happening in the world, including regionalisation – not outright de-globalisation, but a variant of it.
- The pandemic has also accelerated the trend towards globalisation of services, driven by digitalisation and global lockdowns showing the possibilities for remote work that we couldn’t have imagined possible just a few years ago.
Further reading from Ninety One:
- The Great Shutdown and the Next Regime – a research series that explores the medium-term impacts of COVID-19, in particular:
o Will the pandemic spur deglobalisation?
o The digital economy and the future of work
o The conclusion piece, including prospects for inflation and asset allocation observations
Important information This communication is provided for general information only should not be construed as advice. All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One. Any opinions stated are honestly held but are not guaranteed and should not be relied upon.