Ideas Farm 

Ideas Farm: Profit from ESG

Ideas Farm: Profit from ESG

Any reader who listened to last week’s IC Investment Hour podcast will know that the world of environmental, social and governance (ESG) investing is immensely confusing. However, it is also a theme that offers significant potential rewards. This latter point is the reason we’ve picked it as one of the theme’s for the Fund Manager Best Ideas lists we publish on rotation in the Ideas Farm. 

This week we’re featuring a list of the most popular holdings of top global equity ESG funds - last week it was holdings of UK focused sustainable funds. We think top fund managers’ best ideas could prove particularly valuable for highlighting stocks in an area as confusing as ESG.

The CFA’s sustainability handbook gives no less than seven approaches to ESG equity investment: exclusions; best-in-class; ESG integration; exercise of voting rights; shareholder engagement; sustainability themes; and impact investing (investment targeting specific positive results)

Adding to the confusion created by the plethora of takes on sustainability, there is little evidence of any outperformance by ESG funds of conventional counterparts. What’s more, research from the Indian School of Business suggests only about half of the socially responsible funds on Morningstar’s database actually boast superior ESG metrics than that expected from an average conventional fund. 

Perhaps ESG funds with weak ESG scores should not be too surprising given it can be an entirely legitimate, socially-conscious approach to engage with companies that have poor ESG policies to encourage them to do better. So too can investing in companies that provide sustainability solutions to others regardless of their own internal standards.

For investors, the more significant findings from academic research is that companies that focus on ESG issues do show some signs of share price outperformance. This seems to be particularly true of companies that focus on the most significant ESG issues in their sector - i.e. ESG that matters rather than ESG just for the sake of it. A potential implication is that as well as addressing risk, intelligently addressing ESG themes may also help companies find new areas of competitive advantage as well as marking out management that have broader capital allocation talents. 

These are the type of companies we’d expect our sustainable Best Ideas lists to highlight, not least because of evidence that fund managers' biggest holdings tend to outperform. So far we feel the lists published in the Ideas Farm have offered rich pickings for ESG investment ideas, with a number of our tips over recent months taking inspiration from this source. Recent examples include industrial gases group and potential hydrogen-energy pioneer Linde, and leading wind turbine maker Vestas. 

This week’s tip section includes a buy recommendation on Unilever (UNLR), which appears in the sustainability best ideas list below. It perhaps has a less obvious connection to the making-money-from-ESG theme. However, a sustainability drive to make the company carbon positive by 2030 could prove a canny way to differentiate its brands, which include the likes of Ben & Jerry’s ice cream and Dove soap. Essentially, by bringing its financial muscle to bear on sustainability, the group may be able to create a new competitive edge for its brands. This comes at a time when many fear Unilever’s historic advantage based on clout in advertising and product-placement could be undermined by local brands exploiting highly-targeted social media marketing and online sales. 

 

Click here to view the tables in PDF form

 

Fund Manager best ideas: Global Sustainable
 No. Funds
Microsoft Corp10
Thermo Fisher Scientific Inc5 (-1)
Adobe Inc3 (+1)
Alphabet Inc A3
American Water Works Co Inc3 (+1)
Equinix Inc3 (+2)
Linde PLC3
Amazon.com Inc2
Chr. Hansen Holding A/S2 (+1)
Mastercard Inc A2
Roche Holding AG Dividend Right Cert.2 (-1)
Synopsys Inc2 (+1)
Taiwan Semiconductor Manufacturing Co Ltd2 (NEW)
Visa Inc Class A2 (-1)
ABB Ltd1
AbbVie Inc1
adidas AG1 (NEW)
Adyen NV1
Ain Holdings Inc1
Apple Inc1
AstraZeneca PLC1
Autodesk Inc1 (-1)
Bandwidth Inc Class A1
Bio-Rad Laboratories Inc1
Borregaard ASA1 (NEW)
Bunzl PLC1 (NEW)
Cadence Design Systems Inc1 (NEW)
Charter Communications Inc A1
Cisco Systems Inc1
Clean Harbors Inc1
Danone SA1
Deere & Co1 (NEW)
Delivery Hero SE1 (NEW)
Diasorin SpA1
Eli Lilly and Co1 (NEW)
Fresenius Medical Care AG & Co. KGaA1 (NEW)
Generac Holdings Inc1
Gerresheimer AG1
Hoya Corp1
Humana Inc1
Iberdrola SA1
IQVIA Holdings Inc1 (-1)
Johnson & Johnson1 (NEW)
KDDI Corp1
Keyence Corp1
Koninklijke DSM NV1
Lam Research Corp1 (NEW)
London Stock Exchange Group PLC1 (NEW)
Lonza Group Ltd1
MarketAxess Holdings Inc1
MSCI Inc1
Nestle SA1
Novartis AG1
Novo Nordisk A/S B1 (-1)
NXP Semiconductors NV1
PayPal Holdings Inc1
Rayonier Inc1
Rentokil Initial PLC1
SAP SE1
Schneider Electric SE1
Shopify Inc A1
SoftBank Group Corp1
Staar Surgical Co1
Taiwan Semiconductor Manufacturing Co Ltd ADR1 (NEW)
Tesla Inc1 (-1)
Texas Instruments Inc1
The Estee Lauder Companies Inc Class A1 (NEW)
Unilever PLC1
Varian Medical Systems Inc1 (NEW)

Source: Morningstar, as at 9 September 2020. Based on top 5 holdings.

 

New 52-week highs   
NameTIDMPrice% from hi
Collagen SolutionsCOS7p0.0%
Capital Gearing Trust PlcCGT4,500p0.4%
Baillie Gifford Japan TrBGFD853p0.6%
JP Morgan Japan SmallerJPS455p0.8%
BBGIBBGI171p0.8%
SDCL Energy EfficiencySEIT112p0.9%
GenusGNS3,894p1.0%
ExperianEXPN2,924p1.1%
Hipgnosis SongsSONG122p1.2%
Gresham HouseGHE690p1.4%
Hastings Group HoldingsHSTG252p1.5%
HgCapital TrustHGT275p1.6%
RenishawRSW5,255p1.7%
Baillie Gifford ShinBGS203p1.7%
JPMorgan Global Core RealJARA111p1.8%
JPMorgan Global Core RealJARA111p1.8%
TR European Growth TrustTRG990p1.8%
BlackRock Greater Eu InvtBRGE452p1.8%
BH MacroBHMG3,600p1.9%
JPMorgan Japanese InvtJFJ552p2.1%
Intertek GroupITRK6,046p2.1%
CQS Natural ResourcesCYN95p2.2%
Schroder Asian TotalATR404p2.2%
Schroder AsiaPacific FundSDP491p2.2%
Fidelity Japan TrustFJV184p2.3%
Miton UK MicroCap TrustMINI55p2.3%
Greatland GoldGGP17p2.3%
JPMorgan Asia GrowthJAGI417p2.6%
Jersey ElectricityJEL475p2.7%
Croda InternationalCRDA5,936p2.8%
Gore Street EnergyGSF106p2.8%
JP Morgan European SmallJESC394p2.8%
Hikma PharmaceuticalsHIK2,594p2.8%
JP Morgan Emerging MktsJMG1,058p2.9%

Source: FactSet, as at 9 September 2020

 

New 52-week lows

NameTIDMPrice% from lo
Altitude GroupALT15p1.6%
Standard CharteredSTAN376p1.9%
HSBC HoldingsHSBA321p2.0%
John Laing GroupJLG278p2.4%
KKV Secured Loan FundKKVX40p2.5%
RotalaROL19p2.7%
TOC Property Backed LndngPBLT86p2.9%

Source: FactSet, as at 9 September 2020

 

Shorts

CompanyShort InterestNo. Shorters1wk chg in short interest
HAMMERSON PLC14.0%110.0%
METRO BANK PLC8.7%5-0.1%
SAINSBURY (J) PLC8.4%7-0.1%
PREMIER OIL PLC8.1%20.0%
PEARSON PLC8.1%81.2%
CINEWORLD GROUP7.9%8-0.2%
TULLOW OIL PLC7.5%60.0%
Royal Mail Plc7.2%60.0%
PETROFAC LTD5.6%20.0%
PETS AT HOME GROUP PLC5.6%7-0.3%
PETROPAVLOVSK PLC5.5%7-0.1%
TUI AG5.2%60.4%
DOMINO'S PIZZA GROUP PLC5.0%30.1%
WEIR GROUP PLC/THE5.0%40.1%
BABCOCK INTL GROUP PLC4.8%50.0%
FUTURE PLC4.7%30.0%
BLUE PRISM GROUP PLC4.0%40.0%
IQE PLC3.8%30.1%
VODAFONE GROUP PLC3.7%40.0%
MICRO FOCUS INTERNATIONAL3.7%5-0.9%
CRODA INTERNATIONAL PLC3.6%30.7%
CAPITA PLC3.5%30.0%
N. Brown Group3.5%40.0%
WM MORRISON SUPERMARKETS3.4%40.0%
ASHMORE GROUP PLC3.3%30.1%
KEYWORDS STUDIOS PLC3.3%50.6%
HURRICANE ENERGY PLC3.2%20.0%
GVC Holdings Plc3.2%5-0.1%
MARKS & SPENCER GROUP PLC3.1%50.0%
WOOD GROUP (JOHN) PLC3.1%40.0%
AUTO TRADER GROUP PLC3.0%10.0%
Primary Health Properties PLC3.0%3-0.2%
ULTRA ELECTRONICS HLDGS PLC2.9%30.0%
INTERCONTINENTAL HOTELS GROUP PLC2.9%30.2%
VICTREX PLC2.9%30.2%
SMITH (DAVID S) HOLDINGS PLC2.8%10.0%
NETWORK INTERNATIONAL HOLDINGS PLC2.5%30.3%
RESTAURANT GROUP PLC2.4%20.0%
B&M EUROPEAN VALUE RETAIL S.A.2.3%2-1.0%
HISCOX LTD2.2%20.0%
VITEC GROUP PLC (THE)2.2%4NEW

Source: FCA, as at 9 September 2020

 

1-month EPS upgrades

 FWD EPS CHG
NameTIDM1mth3mth1yr
MJ Hudson GroupMJH180.0%180.0%-
Alfa Financial SoftwareALFA169.9%100.6%-72%
Halfords GroupHFD138.0%-27.9%-26%
Mpac GroupMPAC125.2%8.8%-19%
ASOSASC111.7%-248%
TI Fluid SystemsTIFS79.3%102.6%-85%
Science GroupSAG72.3%-1.0%12%
Alumasc GroupALU65.7%65.6%-13%
RenishawRSW65.1%82.5%-34%
Accrol Group HoldingsACRL58.2%58.2%-
Wentworth ResourcesWEN53.8%32.4%-36%
SigmaRocSRC53.8%54.8%-19%
IXICOIXI50.0%--
Intu PropertiesINTU40.4%-23.2%-72%
Clipper LogisticsCLG39.7%36.7%0%
CapitalCAPD39.0%44.9%70%
Grafton GroupGFTU38.6%20.0%-45%
Luceco PlcLUCE38.6%126.1%63%
Plus500PLUS35.0%54.4%206%
Keystone Law GroupKEYS30.9%-24.5%-51%
Frontier DevelopmentsFDEV30.9%34.1%87%
ProactisPHD30.0%30.0%-
Ariana ResourcesAAU26.7%40.7%-5%
Gem DiamondsGEMD25.6%-81.0%-95%
Hummingbird ResourcesHUM25.2%46.2%343%
AO WorldAO24.0%--
3i Group PlcIII22.8%96.6%-13%
Lok 'n' Store GroupLOK20.2%20.2%13%
BATM Advanced CommBVC19.5%100.8%62%
ChesnaraCSN19.5%27.5%-22%
GraingerGRI18.6%30.0%-12%
Henry BootBOOT18.6%18.6%-69%
4Imprint GroupFOUR18.5%-52.6%-85%
CRHCRH18.0%25.1%-16%
CMC MarketsCMCX17.5%29.7%429%
TBC Bank GroupTBCG17.3%-6.6%-44%
Watches of Switzerland GroupWOSG15.7%15.7%-12%
JD Sports FashionJD15.4%-53.0%-51%
Sylvania PlatinumSLP15.1%32.5%141%
ContourGlobal PlcGLO14.9%51.1%2%
Spectra SystemsSPSY14.4%-11%
Barratt DevelopmentsBDEV13.5%-7.4%-30%
RobinsonRBN13.4%13.4%41%
WincantonWIN12.4%-33.0%-32%
PersimmonPSN12.3%13.7%-22%
Capital & RegionalCAL12.2%-6.9%-60%
GenusGNS11.9%11.0%13%
FerrexpoFXPO11.7%49.6%-38%
Kenmare ResourcesKMR11.7%-61.1%-77%
Tritax EuroBoxEBOX11.6%12.8%27%
Admiral GroupADM11.4%15.4%20%
Jadestone EnergyJSE11.3%--98%
SDLSDL11.3%13.2%-19%
CLS HoldingsCLI11.2%15.0%-9%
Flutter EntertainmentFLTR10.8%19.4%36%
River & Mercantile GroupRIV10.8%12.8%-29%
Travis PerkinsTPK10.3%-14.0%-45%
McBrideMCB10.1%13.9%9%
Tribal GroupTRB10.0%10.0%-7%
BunzlBNZL9.9%35.1%-1%
RenewRNWH9.3%9.3%-
Up Global Sourcing HoldingsUPGS9.0%42.7%-1%
GVC HoldingsGVC8.5%26.2%-13%
BeazleyBEZ8.5%188.3%-78%
Caledonia MiningCMCL8.1%13.0%-
Hochschild MiningHOC8.0%19.3%-18%
Royal Dutch ShellRDSA8.0%69.4%-77%
Bank of Georgia GroupBGEO7.7%-26.6%-46%
Gamesys GroupGYS7.6%7.0%32%
Royal Dutch ShellRDSB7.4%57.6%-77%
Dechra PharmaceuticalsDPH7.4%6.0%-1%
Codemasters Group HoldingsCDM7.4%49.4%38%
Polymetal InternationalPOLY6.9%16.3%72%
EVRAZEVR6.7%16.2%-56%
FutureFUTR6.7%10.1%48%
Breedon GrpBREE6.6%-42.4%-51%
FresnilloFRES6.5%55.1%61%
Pets At HomePETS6.4%-2.4%-15%
Kainos GroupKNOS6.3%38.3%28%
Empiric StudentESP6.1%11.6%-45%
Compass GroupCPG5.9%-0.5%-73%
RHI MagnesitaRHIM5.8%8.0%-47%
Hikma PharmaceuticalsHIK5.6%8.0%16%
Panoply HoldingsTPX5.6%46.2%8%
Next Fifteen CommNFC5.4%8.1%-12%
Rio TintoRIO5.1%17.2%-16%
AvivaAV5.1%4.0%-17%
Arcontech GroupARC5.0%5.0%2%
CranswickCWK4.8%15.5%28%
AntofagastaANTO4.8%136.5%-40%
BodycoteBOY4.7%-5.5%-44%
IbstockIBST4.5%-53.9%-75%
RSA Insurance GroupRSA4.5%-1.4%1%
Bushveld MineralsBMN4.4%-16.6%-53%
Central Asia MetalsCAML4.3%3.3%-37%
STV GroupSTVG4.2%-22.1%-32%
Standard CharteredSTAN4.2%2.1%-56%
Just GrpJUST4.0%18.2%9%
Gear4music HoldingsG4M4.0%261.1%457%
CapitaCPI4.0%-24.1%-51%
AAAA3.9%14.2%-10%
PrudentialPRU3.9%1.5%-1%
Dunelm GroupDNLM3.7%11.7%-17%
NCC GroupNCC3.7%27.3%-31%
PlaytechPTEC3.7%7.0%-60%
ClarksonCKN3.4%-5.7%-14%
Network International HoldingsNETW3.2%-19.4%-49%
Games Workshop GroupGAW3.2%22.6%2%
BarclaysBARC3.1%191.6%-80%
ComputacenterCCC3.1%15.1%19%
Direct Line Insurance GrpDLG3.1%-2.0%-14%
Burford CapitalBUR3.1%-18.4%-39%

Source: FactSet, as at 9 September 2020

 

1-month EPS downgrades

 FWD EPS CHG
NameTIDM1mth3mth1yr
Mears GroupMER-88.0%-94.9%-96%
Churchill ChinaCHH-87.9%--86%
PageGroupPAGE-73.4%-93.5%-98%
Midwich GroupMIDW-65.2%-70.3%-72%
Appreciate GroupAPP-62.2%-62.2%-63%
H&T GroupHAT-57.3%-57.5%-40%
HaysHAS-53.1%-46.3%-80%
PetrofacPFC-40.3%-55.8%-80%
Balfour BeattyBBY-37.8%-38.2%-64%
Melrose IndustriesMRO-37.4%-94.0%-98%
Inspiration Healthcare GpIHC-37.1%-47.6%-35%
Vitec GroupVTC-31.8%-41.1%-91%
InterContinental Hotels GroupIHG-30.6%-63.5%-86%
Coats GroupCOA-30.2%-34.8%-81%
SagaSAGA-27.7%-26.9%-75%
InvestecINVP-26.0%-26.0%-43%
Card FactoryCARD-25.3%-25.4%-89%
Bloomsbury PublishingBMY-24.9%-24.9%-46%
CentralNic GroupCNIC-22.9%-18.7%-34%
HammersonHMSO-22.8%-31.9%-69%
Morses ClubMCL-21.2%-21.2%-35%
NewRiver REITNRR-20.9%-60.9%-54%
GlencoreGLEN-20.1%-14.6%-81%
LancashireLRE-19.9%-39.6%-51%
Anexo GroupANX-19.5%-34.0%-36%
Mattioli WoodsMTW-19.2%-19.2%-5%
Serabi GoldSRB-18.9%-37.4%22%
BellwayBWY-18.0%-24.8%-49%
InformaINF-18.0%-40.5%-69%
Frasers GroupFRAS-17.4%5.5%-4%
United Oil & GasUOG-15.2%42.4%-
Cake Box HoldingsCBOX-14.2%--6%
RicardoRCDO-13.9%-36.3%-59%
FRP Advisory GroupFRP-13.8%-13.8%-
Stagecoach GroupSGC-13.7%-80.3%-84%
Serica EnergySQZ-13.5%-30.3%-80%
Airtel AfricaAAF-13.2%-12.8%-27%
Taylor WimpeyTW-11.8%-52.1%-69%
De La RueDLAR-10.9%27.2%-64%
AggrekoAGK-10.9%-29.5%-57%
Signature AviationSIG-10.2%-32.1%-75%
First DerivativesFDP-9.1%-18.2%-37%
HSBC HoldingsHSBA-8.9%-20.0%-69%
Rank GroupRNK-8.5%-11.6%-48%
Go-Ahead GroupGOG-8.1%-31.1%-64%
DignityDTY-7.8%-8.1%-29%
Howden Joinery GroupHWDN-7.4%-35.8%-52%
Amino TechnologiesAMO-7.3%-5.5%-5%
Costain GroupCOST-7.2%-31.7%-73%
Marks & Spencer GroupMKS-7.2%-7.9%-66%
RedrowRDW-7.1%-33.8%-53%
Lloyds Banking GroupLLOY-7.0%-30.3%-85%
Workspace GroupWKP-6.9%-16.4%-36%
Babcock International GroupBAB-6.2%-38.0%-41%
AscentialASCL-6.2%-51.3%-89%
NextNXT-6.0%63.7%-61%
Kier GroupKIE-6.0%-28.0%-62%
Greencore GroupGNC-5.9%-20.8%-62%
BHP GroupBHP-5.8%-7.5%-24%
James Fisher & SonsFSJ-5.6%-13.0%-33%
STM GroupSTM-5.4%-5.4%-40%
SeverfieldSFR-5.3%-27.1%-24%
Dixons CarphoneDC-5.3%-15.3%-39%
AbcamABC-5.1%-18.2%-47%
InchcapeINCH-5.0%-32.9%-70%
Rl Est CredRECI-5.0%-2%
RDI REITRDI-5.0%-2.4%-45%
CentricaCNA-4.9%16.4%-36%
Nucleus Financial GroupNUC-4.8%9.2%-33%
Fevertree DrinksFEVR-4.7%-9.1%-38%
Vistry GroupVTY-4.6%-26.8%-40%
Vectura GroupVEC-4.5%-3.2%16%
CVS GroupCVSG-4.3%69.6%-18%
Alliance PharmaAPH-4.2%-4.9%-8%
DiageoDGE-4.2%-1.2%-23%
EbiquityEBQ-4.2%-4.2%-44%
Great Port Est REITGPOR-3.7%-4.3%-18%
PearsonPSON-3.2%-11.8%-51%
Virgin Money UKVMUK-3.0%-2.7%-81%
Pebble GroupPEBB-3.0%-2.4%-

Source: FactSet, as at 9 September 2020

 

Click here to view the tables in PDF form

 

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