Quarterly report
Broad outperformance of sustainable investment (SI) strategies in a volatile quarter
Key highlights:
- Environmental Opportunities (EO) outperformance and green sector divergence – EO was 6.6% ahead of the market in Q1, reversing much of the 7.9% underperformance in 2022. This performance was driven by Energy Efficiency, up 17.0%, which typically outperforms in a cyclical upturn. The weakest sector was Renewable & Alternative Energy, down -2.2%, despite the announcement of strong government support from the US Inflation Reduction Act and the EU Net Zero Industry Act
- Underweight Energy moves from headwind to tailwind – The Energy sector underperformed in Q1, as oil prices fell, following strength in 2022. This benefited strategies such as Global Choice and EU PAB, which are both 4.8% underweight Energy
- Overweight Technology positive – Technology, in which all global and developed SI strategies are overweight, was positive across strategies, although some saw a negative selection effect. The largest positive impact from Technology was in the US
- Financials, a mixed bag – Positioning in Financials varied across SI strategies. EO was underweight, adding to returns, while ESG Low Carbon was overweight, acting as a headwind. The biggest headwinds from Financials were in EM, APAC and Japan
- Valuations manageable but creeping up – SI valuations are down vs 2021 highs and below 5-year averages, except PAB. However, absolute P/Es' have risen in the quarter and the premia over market are now above 5-year averages. Price to Book premia are at 5-year averages. FTSE4Good is the only strategy trading below the market, while EM has the lowest average premium and Japan the highest
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