By Ronald van Genderen
The Morningstar Awards for Investing Excellence for fund houses are handed out to fund houses that not only stand out on the basis of the strong performance of their fund range, but also, in the opinion of Morningstar's fund analysts, possess an outstanding investment culture and put investors' interests first. The Morningstar Awards for Investing Excellence are thus primarily qualitative in nature, with the parent analysis that is part of the analysis leading to the Morningstar Analyst Rating playing a crucial role.
To qualify as a candidate for the Asset Manager award, a fund house must have been awarded a Parent Pillar rating of Above Average or High by Morningstar's fund analysts. In addition, they must be responsible for managing at least 10 funds available in the local market. The longlist is then reduced to a shortlist through a quantitative screening process that looks at the historical risk-adjusted performance of the funds on offer in the local market, supplemented by nominations from fund analysts. After debating the shortlisted candidates, fund analysts cast their votes to determine the final ranking. The winner is determined by majority vote.
The following are the three nominees for the Morningstar Asset Manager Award (in alphabetical order):
J O Hambro
Parent Pillar Score: Above Average
JOHCM was launched in 1993 as an independent asset manager. Since 2011, it has been a wholly owned subsidiary of the Australian asset manager Pendal Group but has operated as a stand-alone boutique. In August 2022, it was announced that Perpetual, which also owns US shops Barrow Hanley, BHMS, and Trillium AM, would acquire Pendal for USD 1.72 billion. It is expected the combined assets under management will be around USD 130 billion. It is expected that JOHCM’s brand identity and boutique culture will remain in place and unchanged, including control over composition of teams, investment processes, and preserving existing incentive arrangements.
JOHCM has little overlap with Perpetual strategies, so little disruption is expected. CEO Alexandra Altinger, who joined in 2019, has been focusing on expanding the firm's fund range and growing its environmental, social, and governance capability.
The increasing focus on ESG is demonstrated by lifting a four-person global equity impact team from Hermes in 2020 and by hiring two managers from Fidelity in 2021 involved in a sustainable water and waste offering. There are further plans to launch thematic-related strategies for these teams. Such sustainable offerings will sit under the brand name Regnan (a specialist ESG firm acquired by Pendal in February 2019), but the managers are part of the JOHCM stable.
Overall, we believe JOHCM is a good steward of investors' capital, resulting in the Parent Pillar score of Above Average.
Parent Pillar Score: Above Average
Robeco demonstrates a strong investment culture and acts as a good steward of investors' capital, earning it a Parent rating of Above Average.
In 2013, Japanese financial conglomerate Orix acquired a 90% stake in Robeco and has fully owned the firm since 2016. It restructured the group, which consists of several autonomous asset managers. This reorganization led to turnover within the higher echelons of the firm, which continued when RobecoSAM was integrated into Robeco in 2020. Fortunately, the instability at the top didn't impact Robeco's investment teams. Robeco has generally been able to attract and retain talented investors, although we have seen a few prominent portfolio managers leave in recent years.
The firm continues to capitalize on its proven expertise, which includes quantitative equities, thematic strategies, and credits, while rationalizing others that fall outside of its wheelhouse. Sustainability has been integrated across all asset classes and strategies to varying degrees, with its impact range still using the RobecoSAM label.
The firm offers strategies that on average score well on both quantitative and qualitative Morningstar ratings. Robeco's remuneration policy is aligned with investors' interests by emphasizing long-term risk-adjusted returns, and the firm has a prudent capacity-management process in place.
Parent Pillar Score: High
The Vanguard Group earns a High Parent Pillar score for its investor-centric ethos, reliable strategies, and democratization of advice.
Vanguard is the asset-management industry's only client-owned firm, and it shows. Vanguard uses the money that its passive strategies make from securities lending to lower if not eliminate headline expense ratios. Modest fees, capable subadvisors, and performance incentives spur its active business to competitive results. Vanguard also offers advice, human and digital, at an accessible cost. All of this helped its global assets under management grow to USD 7.5 trillion as of March 31, 2021.
Yet, Vanguard's non-U.S. business only accounts for a fraction of its assets. Incumbents within many of these markets have sought to keep this low-cost provider at bay. Vanguard has shifted from leading with exchange-traded funds to using advice for entry, such as its joint venture with China's Ant Financial to offer a mobile-based retail service, which had more than 1 million Chinese users a year after its April 2020 launch. But there have been missteps, including the March 2021 abandonment of plans to offer index funds in China.
Putting client interests first is as much a matter of culture as a legal reality at Vanguard, whose U.S. funds own the firm. Keeping that culture intact as its business expands and outsiders join is Vanguard's greatest challenge.
The Morningstar Asset Manager Sustainable-Investing Award
In addition to the regular Asset Manager award, there is also an award for the best fund house in sustainable investing. This award is handed out to the asset manager that not only scores well on the basis of the Morningstar Sustainability Rating, but is also strongly committed to integrating environmental, social and governance factors into its fund offering. These asset managers typically have a clearly defined ESG philosophy, a strong degree of ESG integration into investment processes and adequate resources to conduct sustainability research. In addition, these fund houses are characterized by their extensive engagement and proxy-voting activities.
For the award for the best fund house in sustainable investing, only asset managers that have been awarded a Morningstar ESG Commitment Level of Leader or Advanced by Morningstar's fund analysts are eligible. To arrive at a longlist, an average Morningstar Sustainability Rating is calculated for these fund houses based on the funds in the fund range that have such a rating, supplemented by nominations by fund analysts. After debating the selected candidates, fund analysts cast their votes to determine the final ranking. The winner is determined by majority vote.
The following are the three nominees for the Morningstar Asset Manager Sustainable-Investing Award (in alphabetical order):
Morningstar ESG Commitment Level: Advanced
BNP Paribas Asset Management has further evolved its already strong environmental, social, and governance credentials and continued to add resources, but it has encountered some challenges in rolling out the ESG integration program, and disclosure efforts trail industry best practices. It earns an ESG Commitment Level of Advanced.
Sustainable investing consistently features at the core of BNP Paribas AM’s strategic plan, echoing management’s ambition to become a sustainability leader. It has ramped up its efforts in several key areas. The firm has deployed innovative quantitative tools to assess portfolios' alignment to sustainability frameworks such as the EU Taxonomy and the U.N. Sustainable Development Goals.
Management has also heavily invested in the firm’s sustainability center. The central ESG team now numbers 28 experienced investment professionals. However, turnover within the team has been higher compared with peers, which is concerning. That said, the firm has taken steps to improve retention and more than backfilled those positions.
The group has also enhanced its policies and frameworks regarding internal fund classification, exclusion of controversial businesses, and systematic ESG scoring capabilities. Still, its sustainability ambitions have hit some bumps in the road. Regarding climate action, BNP Paribas AM signed up to the Net Zero Asset Managers Initiative in 2021 but has yet to disclose its net-zero road map and decarbonization targets.
BNP Paribas AM’s active ownership policy is wide-ranging, thoughtful, and well-coordinated. Its internal proxy-voting system is a key strength, which allows it to seamlessly cast and report on its votes at shareholder meetings in line with its ESG principles. The group boasts a detailed engagement policy, provides transparent reporting to investors, and is a vocal proponent of sustainable investing through policy advocacy and engagement with regulators.
Morningstar ESG Commitment Level: Advanced
Candriam continues to build upon its decades-long legacy of sustainable investing, notably by dialing up its focus on climate in engagement activities. However, more remains to be done to integrate ESG criteria throughout the investment lineup, and recent additions to the environmental, social, and governance team have yet to reach their stride. The Morningstar ESG Commitment Level for the firms stands at Advanced.
Candriam launched its first socially responsible strategies in the mid-1990s and was a founding signatory of the United Nations-supported Principles for Responsible Investment in April 2006. In 2017, the firm ramped up these initial efforts with an ambitious initiative to incorporate ESG criteria across all strategies. As of April 2022, nearly 80% of the firm’s assets were in funds classified as either Article 8 or Article 9 under the EU Sustainable Finance Disclosure Regulation.
Candriam has stepped up efforts to address climate risk since 2017, which coincides with the firm joining Climate Action 100+. Candriam’s 2022 proxy-voting policy reflects its heightened focus on climate with the addition of clearer and more specific climate-related priorities and recommendations for investee companies. Candriam is applying greater scrutiny to “Say on Climate” votes, too.
To support its increased focus on sustainability, Candriam has expanded its ESG team. Roughly one fourth of the team joined within the past year, bringing the total headcount close to 20 as of October 2022. The added resources are a plus, but the new joiners will take time to settle into their roles. The central ESG team, led by Wim Van Hyfte since 2016, oversees all of the firm’s ESG activities, including maintaining the ESG scoring framework and serving as a center of expertise to advise investment teams on sustainability-related topics.
Morningstar ESG Commitment Level: Leader
Robeco has a long heritage in sustainable investing and continues to integrate and nurture ESG best practices, earning it a Morningstar ESG Commitment Level of Leader.
Robeco has been a pioneer in sustainable investing for decades, with a history that goes back to 1995. Since becoming an early signatory of the United Nations-backed Principles for Responsible Investment in 2006, Robeco has remained publicly committed to sustainable investing. Robeco joined Climate Action 100+ in 2017, and the firm participates in numerous working groups and collaborative engagement initiatives. The firm has set clear and challenging milestones on climate action and set clear targets to reduce its own operational carbon emissions.
Robeco has shaped its product range according to high ESG standards supported by its vast research capability. The firm applies exclusions and integrates ESG for 96% of its assets under management, with the degree of exclusions and sustainability targets varying depending on whether a strategy is classified as "sustainability inside", "sustainability focused", or "impact". Portfolio managers and analysts have access to a comprehensive sustainability dashboard.
Robeco has built an impressive team that is dedicated to the company’s sustainability initiatives. More than 50 dedicated resources are involved in sustainability research, thought leadership, active ownership, and client support. Although there has been elevated turnover within the firm’s sustainability research team, Robeco has adequately backfilled departures, while adding capability by hiring experts on biodiversity and climate and other key themes.
Robeco’s deep resources enable intensive engagements with many companies simultaneously on a variety of themes. Its public disclosure of voting and engagement activities has improved. Since 2022, Robeco discloses rationales for its voting decisions and provides more case studies naming the companies it engages with. Robeco also now discloses the full list of companies under engagement, categorised by theme.
The winners of the Morningstar Awards for Investing Excellence will be announced at a live event on Wednesday 8 March. To register for this event, please register here.