Vanguard SustainableLife: Investing for a sustainable future roadshow – June 2022
Join us at one of nine locations across the UK as we do a deeper dive into our new sustainable, active multi-asset range, Vanguard SustainableLife.
Register to hear from the exceptional talent behind Vanguard’s four new active ESG funds, as they look to share their views on sustainable investing with advisers at our virtual active insights morning on 12 May.
Adam Levison, senior investment director, Oversight & Manager Search, Vanguard
While there are a number of different approaches to sustainable investing which incorporate environmental, social and governance (ESG) considerations, like Vanguard, Wellington Management Company believes that engagement with companies can improve ESG practices and unlock value over time.
The collaboration of the research teams at Wellington allows the portfolio managers Nataliya Kofman and Loren Moran, who manage the Vanguard SustainableLife active funds, to gain a deeper, more holistic understanding of a security’s long-term value generation potential.
Through this multi-disciplinary approach, Nataliya and Loren are better equipped to assess material ESG considerations in tandem with traditional financial inputs, enabling more informed investment decisions.
Nataliya and Loren leverage the substantial internal research resources of Wellington. In addition to 51 industry-focused global analysts, 107 equity and fixed income research analysts and 19 macro strategists, Wellington’s Sustainable Investing team comprises 34 members across sustainability research and strategy, ESG sector research and climate research.
Given the numerous long-term relationships with corporate management teams and Wellington’s relatively long-term ownership of portfolio companies, they are often well positioned to engage with management to influence behaviour, where appropriate, for the benefit of clients.
For example, Isuzu, a Japanese truck manufacturer, is a high-quality franchise with industry leading powertrain technology and leading market share in Japan and Thailand. However, Wellington had believed that mis-aligned management incentives and insufficient board independence contributed to disappointing past returns.
Over years of holding the stock, Wellington engaged with management and the board on topics of independence and lower than expected returns. Given a lack of progress, Wellington wrote to the board in 2020, encouraging them to increase board independence, among other topics. Wellington also encouraged improvements in board diversity.
While the company made some progress since 2020, it was still lacking and Wellington engaged with the board again earlier this year to reiterate its stance on independence and diversity, among other topics. Its engagement efforts are beginning to yield results.
The portfolio managers also benefit from Wellington’s partnership with organisations at the forefront of sustainability and climate change research. Through its partnership with the Woodwell Climate Research Center and Massachusetts Institute of Technology (MIT), Nataliya and Loren have access to industry experts, from climate scientists to academics, which enables them to deepen their understanding of investment risks and opportunities related to both physical climate exposures and transition planning.
Wellington Management’s climate transition risk analysts also work closely with portfolio managers to enhance portfolio-level measurement, including carbon footprinting and scenario analysis, and to implement long-term climate objectives.
They also collaborate with sector analysts to research the risks and opportunities associated with transitioning to a low-carbon economy – policy, consumer behaviour and technological disruption, and litigation and disclosure requirements—and to translate research findings into actionable investment ideas.
This level of collaboration in the investment process involves the continual assessment of a number of different inputs, blending ESG analysis with traditional fundamental analysis, to generate a holistic view of a company.
Overall, this level of collaboration in the investment process involves the continual assessment of a number of different inputs, blending ESG analysis with traditional fundamental analysis, to generate a holistic view of a company.
The portfolio managers follow their investment discipline dispassionately. On the equity side, Nataliya is often able to buy holdings in companies at a discount to the market because she believes that while the market is efficient at pricing in current macro trends and dominant fundamentals, the market is less efficient when faced with a wider range of outcomes.
Nataliya will often find these opportunities in more cyclical areas of the market, typically franchises with strong balance sheets and dividends which are sustainable. Dividend compounding and steady capital appreciation help drive the return for the equity sleeve in the Vanguard SustainableLife active range
On the fixed income side, Loren combines both top-down macro views, incorporating insights from Wellington’s macro strategists, to determine how much cyclicality and risk she would like in the portfolios with bottom-up security selection.
As active managers, by encouraging board diversity and independence, highlighting the potential to lower production costs by increasing water-use efficiency, or advocating for better health and safety practices, for example, they aim to influence positive change while helping to deliver long-term, sustainable value to investors.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Some funds invest in emerging markets which can be more volatile than more established markets. As a result the value of your investment may rise or fall.
Investments in smaller companies may be more volatile than investments in well-established blue-chip companies.
Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Funds investing in fixed interest securities carry the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate. Movements in interest rates are likely to affect the capital value of fixed interest securities. Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment. The level of income may fluctuate and movements in interest rates are likely to affect the capital value of bonds.
The Funds may use derivatives in order to reduce risk or cost and/or generate extra income or growth. The use of derivatives could increase or reduce exposure to underlying assets and result in greater fluctuations of the Fund's net asset value. A derivative is a financial contract whose value is based on the value of a financial asset (such as a share, bond, or currency) or a market index.
Some funds invest in securities which are denominated in different currencies. Movements in currency exchange rates can affect the return of investments.
For further information on risks please see the “Risk Factors” section of the prospectus on our website at https://global.vanguard.com.
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