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Applying an impact lens to the entire portfolio

Ivo Knoepfel recently spoke at Pymwymic Impact Days*) about onValues’ experience in applying positive impact considerations to the entire wealth of clients, across all major asset classes. He stressed the importance of purpose and intentionality at different levels: at the level of single investments, of investment managers in charge of different parts of the portfolio, and when defining the strategy for the whole portfolio. In public markets, contributions to positive impact are often of a more systemic nature. Equity managers actively allocating capital to companies providing solutions to societal challenges and engaging with company management on these issues need to better report on the rationale and expected outcomes of their activities – Ivo Knoepfel stressed. He showed examples of asset managers and rating agencies that have developed frameworks to do so and reported on the experience of RS Group, a family office client of onValues, in applying an impact lens to their entire portfolio.
*) Pymwymic Impact Days is the leading European gathering of family investors and family offices engaged in the field of impact investing. This year it took place in Amsterdam on April 19 & 20.

Feeling the pulse of the German market

onValues recently conducted a systematic search and selection process for German banks and asset managers that offer investment strategies based on sustainability criteria. The outcomes show that the German market still lags behind other European markets in terms of the quality of the strategies and services offered, although we were able to identify 2-3 institutions that meet our quality standards. Assessment criteria included: institutions’ strategic commitment to responsible business practices, the role of sustainability within their asset management as well as the risk-return characteristics of their main investment offerings. The analysis lead to the following main observations: Most financial institutions market sustainable services but only few demonstrate strategic, top management commitment to sustainability investments. Environmental, social and governance (ESG) criteria are rarely integrated into the overall investment process and in most cases added as an extra filter during the security selection process. There seems to be a certain standardisation of processes for using ESG criteria during security selection driven by the consolidation trend in the sector for independent ESG-research. Performance differences within asset classes are small, but vary significantly for balanced strategies, leading to the conclusion that asset allocation is a key driver of performance.

Using scenario and contingency planning to prepare for the future

onValues has developed a set of long-term (20 years) and mid-term (3 years) scenarios as an input for developing investment strategies and contingency plans for clients. The long-term scenarios are used for strategy development and capacity building, the mid-term scenarios for implementing capital protection (and enhancement) strategies in the event of expected market dislocations. Whereas most investment advisors and asset managers focus only on economic data when defining investment strategies, onValues takes a broader view. Its long-term scenarios include assumptions on geo-political, economic, trade, innovation, demographic, social and environmental developments whose interaction then leads to certain outcomes at the level of the economy and of specific asset classes. The mid-term scenarios focus on turning points in market cycles that are triggered by economic realities and by the behaviour and perceptions of market participants. A system to monitor changes in market state that includes dimensions such as asset valuations, investor sentiment and internal market dynamics is used. onValues then works with clients to define measures aimed at protecting capital which is particularly important given the current risk of asset bubbles.

A different approach to financial market analysis

onValues has recently strengthened its macroeconomic and financial market research capabilities. The company now provides guidance on financial markets outlook based on a multi-dimensional analysis framework. Its approach aimed at better understanding mid- to long-term developments differs substantially from the short-term (3 to 6 months) focus of ‘market outlooks’ provided by banks and traditional advisors. This is in line with onValues’ focus on long-term orientated clients. Therefore onValues relies on the use of long-term data and valuation methodologies which have been proven to be robust over many investment cycles, i.e. decades. As an additional layer the framework monitors behavioral aspects of market participants thus capturing valuable information usually unrecognized in traditional financial market analysis. The onValues framework’s main goal is not to ‘time’ markets but to help clients identify ‘preventable surprises’ that can lead to substantial wealth destruction or unrealistic financial expectations.

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