Australian listed property companies Mirvac and GPT Group will sit alongside the likes of Tesla in UniSuper’s new Global Environmental Opportunities option.
UniSuper, the $60 billion default fund for university staff, revealed last week that it had brought responsibility for managing its environmentally friendly international equities strategy in-house.
The Global Environmental Opportunities option was previously run externally by an undisclosed passive manager.
UniSuper manager of governance and sustainable investment Talieh Williams told Investment Magazine that the fund had decided to bring responsibility for managing the increasingly popular strategy in-house due to a belief it could deliver a stronger net return via active management.
“We have the size and scale to do this, combined with a highly collaborative cross-functional team,” Williams said. “Our quant team will construct the portfolio with significant input from our ESG team.”
Stocks in the portfolio will be selected from the MSCI ESG Research Sustainable Impact Metrics database, which was launched in late 2016. UniSuper is the first Australian super fund to construct a portfolio based on the MSCI database, which maps companies across five key themes based on the United Nations’ Sustainable Development Goals.
Williams said UniSuper’s environmental, social and governance (ESG) analysts would also review all potential investments. “Importantly, our fundamental sector analysts will conduct an investment ‘quality’ review of the proposed constituents to remove the most financially risky securities,” she said.
UniSuper manages roughly 55 per cent of its total assets in-house, with an investment staff of 45 reporting to chief investment officer John Pearce.
Williams said about 70 per cent of the portfolio is invested in alternative energy, such as wind, solar, batteries and biofuels, or energy efficiency technologies, such as LED light bulbs, cloud computing, robots and industrial automation.
“The companies operating in these areas have significant potential business and share price upside, but some of them also have commensurately significant uncertainty regarding their longer-term prospects,” she said. “As a consequence, the share price performance of some of these companies can be much more volatile than the broader market.”
She said key holdings in the portfolio include electric car and battery maker Tesla, automated power distribution component maker Schneider Electric and wind turbine manufacturer Vestas.
“Australian companies in the portfolio include GPT Group and Mirvac, which have made investments to make their buildings very energy efficient so that they achieve high Green Star ratings,” she said.
She said that despite the increased costs associated with moving to active in-house management, the Global Environmental Opportunities option will remain one of UniSuper’s lowest cost strategies with fees of approximately 36 basis points. “We expect that more rigorous quality oversight and active portfolio management (in particular with respect to more risky companies) will provide a performance benefit that offsets the additional cost of the portfolio,” she said.
The target return and risk profile is unchanged, with the portfolio targeting annual net returns of CPI + 5 per cent with an expected frequency of negative annual returns of 5 in 20 years.