amLeague performances analysis
Europe SRI Equities mandate
4^th Quarter 2015
by Cedrus AM

The Europe SRI Equities mandate

amLeague is an online trading platform that allows asset managers to place orders on notional portfolios. The characteristics of the intervention conditions and the mandates were the same for all asset managers, as it is easier to compare the achievements of each of the asset management companies.

SRI has an increasing significance for institutional investors who, in this capacity, participated in the genesis of this mandate. In this case, in addition to the Swiss GPF and AF2i whose key members are part of the club of investors “amLeague”; the Pension Reserve Fund, the civil servants’ supplementary retirement fund (RAFP), the Humanis group and the Caisse des Dépôts intervened alongside amLeague. The mandate began on 31^st December 2013.

Cedrus AM led the development such as making the specifications of the mandate and the working group for the operational implementation of the mandate. ESG ratings are provided to asset managers by Sustainalytics.

Market context – 4^th Quarter 2015

The second semester of 2015 was more than agitated. Fears about the Chinese economic slowdown, signs of a US economic panting and the continuation of the decline in energy prices weighing on equity markets especially during summer, investors keeping in mind the day of August 24^th, during which the decline exceeded 8% on intraday on equity markets in the Euro zone. In the last quarter, the macroeconomic conditions from the United States and raw material prices are still depreciating. On energy matters, Brent crude lost 23% over the period, for precious metals, copper lost over 9% and finally for agricultural materials, wheat stock price has dropped more than 8% in the last quarter 2015.

In early December, the equity markets have been adversely impacted by the easing of the ECB, lower investor expectations, and the rate hike by the Federal Reserve in mid-December contributed to the depreciation of the yuan and the decline in oil prices. The bond markets were generally stable and the euro, having appreciated sharply following the decisions of the ECB, has subsequently stabilized on 1.10.

Global performances analysis

Performances from 12/31/2014 to 12/31/2015

Active management in the Europe Equities SRI mandate allowed the mandate to show very good performance. 75% of managers have outperformed the benchmark index in 2015.

At the high end 2015, we find the strategies managed by THEAM, Roche-Brune and Allianz that conclude the year at +7%, +6.5% and +5.5% in relative returns. If strategies managed by THEAM and Roche-Brune produced similar information ratios, the first distinguished himself with a Sharpe ratio and a much higher alpha (1.03 against 0.94 and 7.25% against 6.29%). As for the low ranking, managers present in the SRI Europe Equities mandate proposed strategies in 2015 that were very competitive against the benchmark with -1.1% in relative returns to the last strategy, the one managed by TOBAM.

However, we note that some managers still have not managed to demonstrate their ability to create value in the long-term and to be sustainable regularly now after two years of participation in the Europe Equities SRI mandate. This is particularly the case of strategies managed by Swiss Life and Degroof Petercam who, two years after the launch of the mandate, provide sensibly inferiors results to those of the index.

Performances from 09/30/2015 to 12/31/2015

In the short term, we encountered during the last quarter 2015, which as we mentioned earlier was particularly agitated, that managers with a low beta have successfully managed volatility on the markets this past three months. As we can see, the strategies managed by THEAM, TOBAM and Swiss Life exhibit volatility significantly contained versus the benchmark or their peers. In addition, we can think intuitively that the ‘low vol’ angle allows particularly (but not only) to capture a kind of "quality" or "defensive" risk premia (there is no general framework setting premiums alternative systematic risk).

ESG indicators analysis – 31^st December 2015

ESG indicators analysis – 30^th September 2015

Specific indicators analysis – 31^st December 2015

Specific indicators analysis – 30^th September 2015

Since the launch of the mandate in the end of December 2013, the overall ESG rating and the ratings on all three pillars are higher than those of the STOXX® Europe 600 non-weighted by market capitalizations among all managers. The differences and hierarchy of these ratings remain relatively stable but increasing to an overall grade of the ESG mandate from 71 to 73 in two years as of December 31^st of 2015. Degroof Petercam, Allianz GI and ECOFI Investments are ranking on top, while La Française AM progresses to a global ESG score of 71 from 70, but is at the last position of the mandate. Many managers have seen their rating ESG increase in the last quarter with a noticeable improvement for the majority of managers on the social pillar.

Besides, it can be noticed that the environment is consistently the pillar on which the gap is the most important between the universe and the average manager rating. This gap is indeed stable around 8 points, and it varies from 6 to 11 points from one portfolio manager to another. It is thus more than on the social and governance pillars with average gaps of 6 and 4 points respectively.

Much wider gaps can be observed at the concrete indicators level, THEAM in particular posts ratings much lower than those of the other managers on the supply chain criteria. On the other hand, this manager is globally the least exposed to companies for which ESG controversies were identified by Sustainalytics.

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