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M&G (ACS) BlackRock US Equity Fund

4 min read 17 Oct 21

This update provides an overview of the M&G (ACS) BlackRock US Equity Fund, a bespoke solution developed by M&G Treasury & Investment Office (T&IO) in conjunction with BlackRock.

US BlackRock ESG Optimised Equity Strategy

There are a number of ways to incorporate Environmental, Social and Governance (ESG) into an index enhanced strategy, ranging from simple exclusion policies, to more sophisticated integration approaches. The bespoke strategy we have created, provides both strong ESG benefits and a tracking error to the parent index (S&P 500) that investors would expect.

To achieve this, the fund screens out certain exposures, such as Controversial Weapons, Tobacco, Thermal Coal, Oil Sands, UN Global Compact violators, etc., and reweights the remaining constituents based on a bespoke ESG scoring system. The portfolio is then optimised to ensure a small tracking error to the benchmark, designed for investors who want to screen out controversial business areas, and reward strong ESG stocks, without deviating too far from the risk profile of the traditional market index.

Investment process:

The Sustainable Investing Material BlackRock Analysis (SIMBA) score is based on 6 pillars, covering Environmental, Social and Governance features. The quantitative and qualitative sub-components of each pillar are differentiated by industry, and weightings are aligned with elements that might be considered material to business success. For example, the SIMBA score for companies involved in retail will have a higher weighting to the ‘Social’ pillars of Internal Stakeholder Management (e.g. Customer Relations) and External Stakeholder Management (e.g. Workers’ Rights).

Leveraging on BlackRock’s skills in Factor-based portfolio management

The optimisation process looks to create a portfolio that maximises the ESG/SIMBA score by being overweight stocks with higher ESG/SIMBA scores, whilst managing stock and sector specific risk, cross correlations, transaction costs, turnover and overall tracking error.

The following charts show back testing of the strategy (from 01.01.2015 to 31.05.2021) and are therefore indicative of how the ESG screens and strategy would have impacted Performance, Carbon Intensity and the ESG score relative to benchmark (S&P 500). Please note that this is for indicative purposes only, and should not be relied upon for future outcomes. Scoring of the ESG credentials of companies will continue to evolve over time, as will the Asset Owner ESG Investment Policy, which could impact on future screening within the portfolio.

Performance – S&P 500

ESG Score – S&P 500

Carbon Intensity – S&P 500

Source: BlackRock. 31.05.2021

The Fund was launched on the 4th June 2021. As at the 30th June 2021, the portfolio had a proprietary BlackRock ESG score of 1.93 vs the benchmark score of 1.46, representing a 32% increase. Other key sustainability factors to note include the -51% lower emissions than the benchmark (based on Carbon Emissions Intensity (Sales) metrics), +20% higher allocation to issuers with stakeholder engagement (in their decision making process), and +11% increase in the proportion of issuers which have ESG related compensation policies.

The largest sector underweights are to Industrials and Consumer Staples, with Information Technology and Healthcare leading the overweights.

This chart gives an indication of the fund positioning which is regularly reviewed by the M&G Treasury and Investment Office (T&IO) and may vary from time to time, but will always be consistent with the fund’s objective.

Top Ten Holdings

APPLE INC

6.2%

MICROSOFT CORP

6.2%

AMAZON COM INC

3.8%

ALPHABET INC CLASS A

2.4%

ALPHABET INC CLASS C

2.4%

FACEBOOK CLASS A INC

1.9%

NVIDIA CORP

1.9%

JOHNSON & JOHNSON

1.8%

TESLA INC

1.5%

WALT DISNEY

1.4%

This chart gives an indication of the funds top ten holdings which are regularly reviewed by the M&G Treasury and Investment Office (T&IO) and may vary from time to time, but will always be consistent with the fund’s objective.

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