The Redpoint Sustainable Global Strategy provides a broadly diversified global equity investment with reduced exposure to companies exhibiting poor sustainability characteristics.
Sustainability captures a firm’s environmental, social and governance (ESG) policies. Evolving from socially responsible investing (SRI), a portfolio of firms with sustainable business practices incorporates a principled, ethical perspective. In practice, an ethical perspective that excludes large stocks, industries or sectors will result in periods of underperformance and heightened volatility relative to market benchmarks. Investors are challenged to incorporate sustainability considerations without sacrificing performance or increasing volatility.
Redpoint’s investment insight addresses this challenge. In addition to being an ethical consideration, sustainability is a valuation concept related to management best practices. Sustainable business practices maximize firm value in an enduring manner, by motivating all stakeholders to work for long term growth. By screening to underweight or to exclude firms with poor sustainability, a broadly diversified global portfolio can be formed without sacrificing performance or increasing volatility relative to a market benchmark.
This exclusionary screening approach is also consistent with the nature of sustainability data. Sustainability measures are correlated within and across firms. Correlation within a firm reflects good management practices uniformly applied. Correlation across firms reflects good management practices are followed by many firms, particularly firms that have grown successfully over time. These correlation patterns suggest exclusionary screening is an effective portfolio construction approach.
Holding a broadly diversified portfolio with favorable sustainability characteristics will permit additional stock selection enhancements. Redpoint incorporates short term, quantitative financial statement measures of firm quality to supplement the longer term ESG measures of quality. Quantitative portfolio construction balances these insights against stock specific, size, sector, country and factor risk. With insight and design expertise, the Redpoint Sustainable Global Strategy is a well-engineered investment to capture the benchmark return by holding a broadly diversified set of quality companies, well managed to succeed over the long term.
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