Analysis of the M&G (Lux) Pan European Sustain Paris Aligned Fund
27 AUG, 2024
By Andrea Sepúlveda from LatamSelf
The fund M&G Pan European Sustain Paris Aligned is a European equity fund, launched in 2018 and domiciled in Luxembourg, which has two objectives: a financial one and a sustainability one. Financially, the fund aims to offer a total return higher than the European stock market over a five-year period. On the sustainability front, the goal is to invest in companies that contribute to the climate goals of the Paris Agreement.
Characteristics of the M&G (Lux) Pan European Sustain Paris Aligned fund
The main features of this strategy are:
- Investment strategy: regarding the selection of companies, the fund invests at least 80% of its capital in sustainable business instruments, regardless of the sector or market capitalization, as long as they are domiciled or with predominant economic activities in Europe. The selection of securities is conducted through a bottom-up approach, based on a thorough analysis of each company, both from a financial and sustainability perspective, considered crucial by the investment team. Based on the applied ESG criteria, the selection process adopts a dual approach: one of exclusion and one aimed at achieving positive ESG results. In this way, the fund seeks to make long-term investments in sustainable businesses that contribute to the long-term goals for global warming of the Paris Agreement, focusing on companies with low or reduced carbon intensity. Even though the team emphasizes that sustainability is not the only financial objective, these aspects are fully integrated into the investment process and monitored through a series of ESG indicators. Of course, companies must demonstrate that they have competitively sustainable business models to protect their profitability. The strategy therefore aims to identify European companies that not only generate attractive financial returns for investors, but also operate responsibly and sustainably. This latter factor is of particular importance in the selection of companies.
- Benchmark index: the benchmark used is the MSCI Europe Net Return index, and well-defined ESG criteria are applied. In addition, the fund is classified as article 9 according to the SFDR regulation.
- Investment team: the investment team is led by John William Olsen, who has extensive experience in the field of investments. In addition to managing the company's global and European strategies, since 2014 he has been leading the M&G Sustain + Impact team.
- Assets: as of August 20, 2024, the M&G (Lux) Pan European Sustain Paris Aligned fund managed over 350 million EUR in assets.
Evolution of the M&G (Lux) Pan European Sustain Paris Aligned fund
It is important to mention that the fund changed its name, objective and investment strategy on July 30, 2021. Prior to this date, the fund was called M&G (Lux) Pan European Select Fund. Therefore, the returns obtained before this date refer to different conditions.
This fund has undergone mergers with other funds of the same company, name changes and changes in investment strategy to include sustainability criteria. However, the team shows the performance results of the various strategies adopted and, over time, it will be possible to evaluate the results of the current strategy more clearly. So far, the fund has outperformed its own benchmark with annualized returns, while maintaining a strong commitment to rigorous ESG criteria.
The fund has a Beta over three years slightly higher than 1, which indicates a slightly more aggressive profile compared to the benchmark (MSCI Europe Index). Regarding the Alpha, the fund has shown good performance at one and three years, suggesting that the company selection by the investment team adds value compared to the benchmark, even considering ESG criteria, such as exclusion.
Other fund indicators
Compared to the benchmark, there are significant differences. As mentioned earlier, the fund is actively managed and the team has the freedom to choose the companies to invest in, hold and sell. Therefore, the fund's positions can differ greatly from the components of the reference index. The fund maintains a concentrated portfolio of 35 companies or less (compared to the benchmark, which has over 400 components), as the manager selects only the most suitable securities to build a concentrated and high conviction portfolio. This leads some companies in the fund to be significantly over or under represented compared to the index.
Conclusions
Advantages
- Institutional size fund with a good track record.
- Fund that, considering the ESG criteria and process changes and mergers, has managed to outperform the benchmark.
Disadvantages:
- Changes in investment policy and mergers over time can hinder a smoother analysis of the fund.
