Investment Product and Service Launches

First Affirmative Launches AffirmativESG

First Affirmative Financial Network has launched its AffirmativESG adviser workstation.

AffirmativESG is an environmental, social and governance (ESG) adviser-driven digital wealth management platform. First Affirmative developed AffirmativESG to integrate a financial adviser’s advice model with ESG expertise and rigorous due diligence practices. 

“There’s no one-size-fits-all portfolio when it comes to ESG investing,” says First Affirmative co-founder and CEO George Gay. “We’ve taken our 30-plus years of experience in ESG [investing] and built a new kind of platform where advisers can fully align their clients’ investments to the things they value, whether it’s diversity, animal rights, the environment, LGBTQ+ issues, gun control and more.”  

AffirmativESG includes multi-platform access, eases mass-customization of ESG portfolios on the platform and automates account opening, portfolio construction, investment policy statement (IPS) generation, tax management and performance reporting, all in a paperless environment. 

AffirmativESG incorporates eight categories of impact preferences curated by First Affirmative, with 50 sub-categories for further client customization, including animal rights, fossil fuels, renewable energy, other environmental issues, corporate behavior, culture and behavior, military and weapons, and prison and detention.

Companies are placed in these categories following a careful vetting using First Affirmative’s long-standing research and analysis. The company also employs a proprietary sustainability screen, which eliminates poor ESG performers from each industry group.

AffirmativESG offers two other sustainable investment solutions: Multi-Manager and Managed Mutual Fund. The Multi-Manager SIS features carefully chosen investment models, while the Managed Mutual Fund SIS is a portfolio of select mutual funds. Both integrate ESG factors into the investment analysis and selection process.

“We’ve put a tremendous amount of our intellectual capital into this platform so that we can deliver portfolios customized to meet the financial objectives and specific ESG preferences of the individual client,” says First Affirmative Chief Investment Officer (CIO) Theresa Gusman. “What we’ve built here is on the cutting edge for both advisers and their clients, and it’s what the investment world is increasingly demanding.” 

Dimensional Fund Advisors to Add New Actively Managed ETFs

Dimensional Fund Advisors has filed a preliminary registration statement with the Securities and Exchange Commission (SEC) to launch six new actively managed, tax-efficient exchange-traded funds (ETFs).

Additionally, the firm announced plans to convert six tax-managed mutual funds into those new ETFs in 2021. The new ETFs will extend Dimensional’s existing suite of ETFs, the first two of which were set to be listed on NYSE Arca beginning November 18.

Dimensional will be one of the first asset managers to launch active, transparent ETFs using SEC Rule 6c-11 and convert mutual funds into ETFs in this fashion. The suite of tax-managed mutual funds to be converted consists of approximately $20 billion in assets under management (AUM). While the six mutual funds have delivered tax efficiency similar to what is available in the existing ETF market, their conversion will provide an additional tool to manage capital gains, supporting the funds’ goal to deliver higher after-tax returns by minimizing tax impact. Following the conversion, the management fees of the six funds are expected to be reduced by 27%, on average, from current levels on an asset-weighted basis. Dimensional intends to structure the conversion to be a tax-free event in which each investor’s mutual fund shares will convert to ETF shares.

“We’re pleased to broaden our ETF platform in a way that can help investors manage taxes even more efficiently,” Dimensional Co-CEO and Chief Investment Officer (CIO) Gerard O’Reilly says. “We believe these strategies fill a unique space in the market, providing the benefits of passive investing, including low-cost diversified exposure to stocks, combined with the advantages of active investing, such as higher expected returns, flexible trading, robust daily portfolio management and risk management.”

“We want our clients to have the tools they need to help investors meet their financial goals,” Co-CEO Dave Butler adds. “Financial professionals use different vehicles to invest in the capital markets, including mutual funds, ETFs, separate accounts and trusts. We’re committed to providing choices in how they access our investment expertise on behalf of their clients.”

Dimensional also plans to launch an Emerging Core Equity Market ETF in early December.

Conning Adds Climate Risk Reporting and Scenario Service

Conning has launched a new Climate Risk Reporting and Scenario Service, equipping institutional investors with the tools and analytics needed to assess portfolio risk under a range of climate change stresses.

The new modeling service responds to the increasing interest Conning has seen by insurers and pensions on the topic of environmental, social and governance (ESG) investing globally and the evolving frameworks for climate-related risk management.

“While the need for companies to assess climate risk is clear, there has been little in the way of a well-defined methodology for taking climate risk modeling beyond simple deterministic stress testing until now,” says Matthew Lightwood, global product manager of Conning’s GEMS Economic Scenario Generator software. “Our new Climate Risk Reporting and Scenario Service bridges this gap, combining robust stochastic economic modeling and climate change scenarios to provide insurers and pension plans with greater insights and richer narratives around their exposure to these risks.”

The service produces a Climate Risk Report, powered by Conning’s GEMS Economic Scenario Generator software. As an additional benefit, users of the service have access to the underlying scenario sets for use in their asset and liability modeling systems. In addition, Conning’s climate stress scenarios enable users to explore different pathways in terms of when and how transition and physical climate impacts may occur in the future.

“Climate change poses material risks for investment portfolios and the global economy as a whole, yet we have found that many institutional investors have struggled to measure these risks, mainly because of a lack of a reliable and standardized methodology,” says Woody Bradford, Conning’s CEO and chair of the board. “We are very proud that Conning is taking a leadership role in the industry by helping institutional investors evaluate climate change-related investment risks.”  

Morningstar Integrates ESG Factors

Morningstar Inc. has begun formally integrating environmental, social, and governance (ESG) factors into its analysis of stocks, funds and asset managers.

Morningstar equity research analysts will employ a globally consistent framework to capture ESG risk across more than 1,500 stocks. Analysts will identify valuation-relevant risks for each company using Sustainalytics’ ESG Risk Ratings, which measure a company’s exposure to material ESG risks, then evaluate the probability those risks materialize and the associated valuation impact. Results from this research will inform Morningstar’s assessment of a stock’s intrinsic value and the margin of safety required before assigning a Morningstar Rating for stocks between five stars and one star. Morningstar acquired Sustainalytics, a globally recognized leader in ESG ratings and research, in July.  

Morningstar manager research analysts will analyze the extent to which strategies and asset managers are incorporating ESG factors as part of its new Morningstar ESG Commitment Level evaluation. In conducting the strategy evaluation, the analysts will assess the analytics and personnel committed to each strategy and the extent to which the strategy incorporates those resources into the investment process. To perform the evaluation of asset managers, analysts will consider how clearly the firm has articulated its ESG philosophy and policies, and the degree to which it has driven those policies through its culture and investment processes. The ESG Commitment Level evaluation of strategies and asset managers will follow a four-point scale of Leader, Advanced, Basic and Low.    

Morningstar equity research analysts will use Sustainalytics research to capture ESG risk using a consistent process across industries, and in a manner that aligns with Morningstar’s long-term oriented and fundamentals-focused investment philosophy through two principal channels: the Morningstar Economic Moat Rating and the Uncertainty Rating. These ratings inform Morningstar’s assessment of intrinsic value and required margin of safety, respectively, and, ultimately, are rolled into the Morningstar Rating for stocks.

Additionally, Morningstar will rename the Stewardship Rating to Morningstar Capital Allocation Rating and refine the framework to isolate and evaluate management performance across three key dimensions: balance sheet health, investment efficacy and shareholder distributions. Analysts have identified these three factors as being important in measuring management’s impact on total shareholder returns.

“Integrating ESG directly into the marrow of our research methodology helps us to widen the aperture of the traditional financial analysis and more precisely capture ESG risks that can exert a profound influence on long-term competitive dynamics and the sustainability of a company’s earnings,” says Dan Rohr, head of equity research for Morningstar. 

Analysts will use Sustainalytics’ ESG Risk Ratings as the basis for identifying valuation-relevant risks. The ESG Risk Ratings measure a company’s exposure to industry-specific material ESG risks and how well a company is managing those risks. This approach to measuring ESG risk combines the concepts of management and exposure to arrive at an assessment of ESG risk—the ESG Risk Rating—which is comparable across all industries.

Morningstar will begin to roll out the equity research rating enhancements on December 9 and apply them to Morningstar’s global equity research coverage universe of more than 1,500 companies. The incorporation of ESG factors will update on a rolling basis through 2021. 

The new methodology for Morningstar’s equity research is available here. Further details on how ESG information will be integrated into each component is available here and more specifically for the Capital Allocation Rating here. 

 T. Rowe Price Establishes Separate Investment Management Group

T. Rowe Price Group Inc. has announced that it will establish T. Rowe Price Investment Management Inc. (TRPIM), as a separate U.S.-based Securities and Exchange Commission (SEC)-registered investment adviser (RIA). TRPIM will have its own investment platform and veteran leadership, with more than 100 associates, including at least 85 investment professionals.

The firm intends to move the US Capital Appreciation, US Mid-Cap Growth Equity, US Small-Cap Core Equity, US Small-Cap Value Equity, US Smaller Companies Equity and US High Yield Bond Strategies into TRPIM. There are no planned portfolio manager changes associated with this transition and no change is expected in the day-to-day management of client assets. Pending all approvals, the transition of these strategies from T. Rowe Price Associates Inc. (TRPA) to TRPIM is expected to take place in the second quarter of 2022. As of September 30, the six strategies represented $167 billion in assets under management (AUM).  

There will be no impact to the structure or approach of the firm’s target-date portfolios or other multi-asset products.

To support the build-out of the research platforms, the firm has been on an accelerated pace of analyst hiring for the past two years and has been integrating these investors into their respective teams. While the majority of hiring has taken place, the firm plans additional hires over the next year. Average portfolio manager and analyst tenure for TRPIM and TRPA is expected to be similar.

Stephon Jackson, currently associate head of U.S. equity and a 13-year veteran of T. Rowe Price’s Equity Division, will become head of TRPIM and will join the T. Rowe Price Group Management Committee as of January 1. The directors of research for TRPIM will be Steven Krichbaum and Thomas Watson, both of whom joined the firm in 2007 and are currently directors of equity research, North America. Tammy Wiggs, who also joined the firm in 2007 and is currently an equity trader, will be head of equity trading for TRPIM. Ric Weible, who has been with the firm for 18 years and is currently director of operations for the U.S. Equity Division, will become director of operations and business management for TRPIM.

The portfolio managers moving to TRPIM include Brian Berghuis (US Mid-Cap Growth Equity Strategy) and David Giroux (US Capital Appreciation Strategy). Giroux will also serve as the chief investment officer (CIO) for TRPIM. Other portfolio managers include Frank Alonso (US Small-Cap Core Equity Strategy), Kevin Loome (US High Yield Bond Strategy), Curt Organt (US Smaller Companies Equity Strategy) and David Wagner (US Small-Cap Value Equity Strategy).

The firm does not expect the transition to be deemed a change of control or management of TRPA, nor does the firm expect any changes to fees or services provided to the funds and client accounts.