R-Ratio-GlobalAktien and R-Ratio-USAktien
Sustainability and climate protection or performance in line with the benchmark?
Institutional investors want to and/or are required to align their portfolios with sustainability and climate protection to a greater degree and reduce their carbon footprint. However, this often conflicts with other investment objectives or requirements, which in turn stipulate investments in line with the market, for example. The R-Ratio funds are intended to solve this dilemma and at the same time offer a climate-friendly alternative to corresponding stock index ETFs.
Lower and further decreasing greenhouse gas intensity combined with low tracking error
The goals of R-Ratio-GlobalAktien and R-Ratio-USAktien are to achieve the lowest possible level of tracking error and as few structural deviations as possible versus the relevant benchmark as well as greenhouse gas (GHG) intensity that is only half that of the given benchmark. The latter will be reduced further over time: It will be cut by 7% year-on-year at the regular, at least annual dates for the recalculation of the portfolio. Both of these requirements – only 50% of the GHG intensity of the benchmark and a 7% reduction – must always be met. This approach is oriented towards the EU Regulation on “Paris-aligned Benchmarks” (Commission Delegated Regulation [EU] 2020/1818), which also stipulates a three-year observation period.
Based on the MSCI World or MSCI USA, the R-Ratio funds invest in a portfolio constructed in line with these requirements that also takes the ESG* sustainability exclusion criteria (e.g. coal, controversial weapons, child labour, etc.) into account as ancillary requirements. In accordance with the EU guidelines, “GHG intensity” is defined as “annual tonnes of CO2 (equivalent) emissions” divided by millions of euros in EVIC*. This figure is calculated for each issuer, multiplied by the weighting in the fund and the benchmark, and totalled across all positions.
Cost-effective implementation
Particular emphasis is placed on the efficient and cost-effective implementation of these objectives. To this end, the number of instruments and the turnover are limited, and suitable ESG index futures are used to represent smaller capital flows. The efficient fulfilment of these manifold objectives is made possible by applying an optimisation approach as opposed to full replication, stratified sampling, or best-in-class. As a result, both funds only contain about a quarter to a third of the equities in the given benchmark and nevertheless have very low tracking error, currently amounting to just 0.7%. In turn, however, the GHG intensity of the fund portfolio complies with the stipulated level of less than 50% of the GHG intensity of the given benchmark and will decline further.
Conclusion: With R-Ratio-GlobalAktien and R-Ratio-USAktien, Raiffeisen KAG offers two sustainable investment funds whose performance largely tracks the corresponding MSCI indices but which have a carbon footprint that is at most half that of the specified indices and will continue to decline and which also take certain ESG exclusion criteria into account.
>> Individualised solutions possible as special purpose funds
Individualised solutions also possible as special purpose funds
Along with the optimisation of low GHG intensity and low tracking error, additional criteria for investments in line with the market can be taken into account for institutional investors as part of a special purpose fund solution. Ranging from the choice of the desired target market to individually defined negative criteria, a wide variety of objectives can be combined and implemented flexibly using our solution, which has been tried and tested since 2017 and is refined on an ongoing basis.
If you are interested or have further questions, the service team for institutional mandates will be happy to help.
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*Explanations
The Sustainable Finance Disclosure Regulation (SFDR) is an EU regulation that governs the disclosure obligations of financial services providers regarding the consideration of sustainability aspects in their processes and products. Article 8 SFDR: The fund takes environmental and/or social characteristics into account in the course of its investment process.
ESG stands for environmental (E), social (S), and good state and corporate governance (G.)
EVIC = enterprise value including cash. EVIC ~ market value of stocks + book value of bonds + book value of cash
The funds exhibit elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.