With a greater number of asset managers clambering to launch environmental, social and governance (ESG) funds, CPR’s Climate Action Fund may have been overlooked in favour of products provided by larger players. However, this would have been a mistake, as the French boutique’s fund has qualities that separate it from an increasingly crowded ESG market.
Arnaud Faller, chief investment officer and deputy CEO of CPR Asset Management, told Fundeye about the benefits of his firm’s fund, which has returned over 20 percent since its inception in December 2018.
“We can invest in all market caps and all sectors except coal. We can invest in oil companies as they are part of the solution,” said Mr Faller.
An ESG fund which holds oil majors may raise some eyebrows among investors, both retail and institutional, however the reasons for doing so are compelling.
Mr Faller told Fundeye in terms of impact, the moves from oil majors “will be more beneficial to the planet”. He added that these companies have the money and are funding research into schemes including ways to trap CO2 in the ground, thereby reducing the amount in the atmosphere.
The fund has already taken in assets exceeding EUR 300 million, not bad for a product that is just over a year old. CPR is now the thematic fund provider for its parent company, Europe’s largest asset manager Amundi. Within the thematic range, CPR manages EUR 8 billion, with over EUR 2 billion held in the fund for which the firm found fame, its Silver Age product which focuses on companies aimed at an aging demographic. Mr Faller explained that the Silver Age Fund was one of the firm’s first products and is arguably what the caught the eye of Amundi leading to the behemoth acquiring CPR in 2015.
The acquisition bolstered CPR’s distribution capabilities and today the firm’s products are available in over 35 countries. The Climate Action Fund is structured as a SICAV although also has a sibling fund designed specifically for the Austrian market.
In terms of building the portfolio for Climate Action, the firm starts with the MSCI All World index, containing over 2700 companies. It then screens the stocks for those rated A or B by the UN’s Sustainable Development Goals. The next step is crucial for the fund’s USP, in that it screens the stocks using the firm’s own ESG filter. Mr Faller is sceptical of firms that just use averages provided by the likes of Sustainalytics or MSCI. He told Fundeye: “You have to go behind the averages, to look at the ‘E’ or ‘S’ in isolation. First we have to analyse with a high granularity then we can talk with the company.”
The firm’s own screening process for its stock selection is largely focused on financials, so looks at earnings per share, free cash flow and other metrics that should help in determining whether a company is a sound investment. The idea is for the fund to be a core part of an investor’s portfolio and Mr Faller said that he’s happy that both retail and institutional investors are interested in the fund, as sometimes the latter group don’t want to be invested in a retail product as it’s considered not as sophisticated.
CPR’s Climate Action Fund has returned over 20 percent in a year, albeit in an environment that has been beneficial for equities as a whole compared to Q4 2018. The firm is willing to stick with companies that are experiencing problems, for instance it continued to hold South African retailer Steinhoff when its share price dropped by 50 percent as CPR didn’t see anything fundamentally wrong with the company. As we start 2020, ESG is only going to continue to get greater exposure as well as more nuanced. This fund, which will hold companies that purely exclusionary funds won’t, should attract inflows as its not limited by market cap or sector.
