ESG-focused active managers rise to the top in difficult 2022 public equity and fixed income market
Investment Metrics, a Confluence company, reviewed the 2022 institutional net flows report to highlight some important developments. This is based off data that is submitted to our Investment Metrics Global Database by asset managers. There are upwards of 3,800 equity products from over 750 asset managers and over 1,900 fixed income products from over 290 firms from our Investment Metrics separate account and commingled fund peer groups. We first highlight the top asset gatherers in the public equity asset class followed by the fixed income asset class. Then, we spotlight those environmental, social, and corporate governance (ESG) portfolios gathering institutional assets in 2022 as well as the top asset management firms.
Public equity markets had a difficult 2022. The MSCI All-Country World Investable Market Index (IMI) was down 18%. Despite this, there were some active manager portfolios that saw weighty in-flows. Table 1 shows the top ten active manager public equity portfolios that had institutional in-flows in 2022. Even though growth stocks struggled in 2022 compared to value stocks, institutional investors may have seen the down market as a good entry point to allocate plan assets to particular active growth managers. Five of the top ten products were growth managers. The emerging market stocks also fared badly. Yet, two of the top ten asset-gathering portfolios were emerging markets equity products. The first, Schroders Asset Management’s Emerging Markets equity portfolio, is well known in the institutional space and has been around since 1991. The second, T. Rowe’s Emerging Markets Discovery equity portfolio, started in 2015 and incorporates environmental, social, and corporate governance (ESG) analysis into its valuation process. Both Schroders and T. Rowe Price have invested heavily in their ESG analysis platforms and are distinguishing themselves as leaders in ESG analysis. The demand for ESG integration continues from institutional investors and it will only escalate with time.
Even though long duration bonds were the worst performing area of the fixed income market in 2022, many of the top asset-gathering portfolios have a long duration. The Bloomberg US Long Treasury index was down 29% in 2022. Half of the top ten products were long duration portfolios. Conversely, there was one global unconstrained bond portfolio in the top ten, T. Rowe Price’s Global Multi-Sector bond product. The institutional in-flows are not surprising because the portfolio has performed very well over the long-term. Another unconstrained portfolio that acquired outstanding in-flows was the leveraged loan portfolio from Blackstone Credit.
ESG-focused portfolios continue to generate interest from institutional investors, in both public equity and fixed income. Baillie Gifford’s Positive Change portfolio has gathered a substantial amount of institutional assets over the past two calendar years. Instead of just excluding bad actors, this portfolio is looking for those companies that are delivering a positive impact to society. The belief is that the demand for these products will grow as economies shift to a sustainable future. Another interesting ESG portfolio gathering institutional assets is KBI’s Water Strategy portfolio. This portfolio is focused on “water stocks” because water is a key resource that will need significant investment to ensure its adequate provision for a growing population. Finally, Sage Advisory’s Intermediate Term Fixed Income portfolio incorporates ESG analysis to the portfolio construction process.
Some active managers did a good job gathering institutional assets in a difficult capital market environment. Table 4 shows the top ten firms that gathered institutional assets in 2022. Sustainable Growth Advisers, based in Stamford, Connecticut is a relatively smaller quality growth equity manager that has done well over the past few years. Additionally, the well-known UK asset manager Schroders continues to do well and its focus on ESG analysis has clearly benefitted the firm. Canadian asset manager RBC Global Asset Management is another firm that has highlighted its ESG analysis capabilities, and it is resonating with institutional investors.
Clearly, some active asset management firms were able to thrive in a very difficult capital market environment. The Federal Open Market Committee raised the federal funds rate another 0.25% this week in order to combat inflation, despite the recent concern surrounding banks. This will most likely add to the volatility in capital markets in the near-term. Nevertheless, the demand from institutional investors to incorporate ESG analysis will only escalate, and those firms that are able to demonstrate their agility will obtain more institutional plan assets.
The material presented in this document is an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or any issuer or security or similar.
This document contains general information only, does not consider an individual’s financial circumstances and should not be relied upon for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should always be given to consult a Financial Advisor before making an investment decision.
Investment Metrics, a Confluence company, does not provide investment advice and nothing in this document should be considered any form of advice. Investment Metrics accepts no liability whatsoever for any information provided or inferred in this document.