SUSTAINABILITY | 06.03.2020
“ESG funds have proven to be more profitable and less volatile in the time of the coronavirus”
The COVID-19 crisis has triggered market volatility, with historic blows to all assets. There have been constant fluctuations since the beginning of March. However, one category of funds has performed better: those that place emphasis on socially responsible investment or that follow environmental, social, and governance (ESG) criteria.
“ESG funds have proven to be more profitable and less volatile in recent months,” remarked Eduardo Ripollés, Institutional Sales Director of MAPFRE AM, during the online event Buscando Valor (Searching for Value) organized by Rankia. “Socially responsible investment has become a ‘core business’ for MAPFRE and we hope that the industry will see us as a benchmark in this area,” he adds.
Ripollés presented the detailed strategy of MAPFRE AM Good Governance, a fund launched by the insurance group’s management at the end of 2017 that brings together investment in value and good corporate governance. As he explains, while the E, for environmental, and the S, for social, are more developed in Europe, American companies are far ahead in the G, for governance. This would explain why the fund’s top ten positions are US firms, with an overweighting compared to its reference index in discretionary consumption, industrial, and technology information sectors. “In the US, the whole concept of active shareholders is more developed — that is, those who want greater control in management meetings, on boards, who value the quality of information, transparency, clear accounting, remuneration…” explains Ripollés.
Therefore, MAPFRE AM Good Governance is a fund that seeks good governance in listed companies, but the team is also very thorough in measuring the impact. In this sense, MAPFRE has the advantage of boasting excellent corporate governance; this experience applies to management, but it also has the backing of two prestigious universities, the University of Siena and the Cranfield School of Management. “In addition to what we know from these academic studies, we have the right tools to be able to analyze the impact,” argues MAPFRE AM’s Institutional Sales Director.
The management team therefore avoids anything that has to do with non-transparent accounting and all transactions between related companies that, according to Ripollés, are very frequent in Europe and Spain and can cause a clear conflict of interest. “We like companies that, when they acquire a stake, do so strategically, thinking about the long-term, because they want to include it in their businesses. So it’s not just a matter of trading cards,” he says.
In his statement, Ripollés cited the case of PayPal, a company that has been occupying more space in the portfolio — reaching 3.44 percent today. The technology company is well-liked both financially, as it has a great capacity to generate cash, and because of its good corporate governance policy (for example, 33 percent of the management team are women or have a good record of creating shareholder value with a 1-percent annual share buyback).
In addition, Ripollés reviewed the rest of the securities in the top ten; these include those already known, such as Amazon, but others that are less well known such as Pagerduty, which is currently the security with the largest weight out of the 36 companies that make up the portfolio. So far this fiscal year, the fund has turned positive and, in 12 months, its profitability is close to 10 percent, clearly differentiating it from the reference index. Its equity amounts to nearly 60 million euros.