Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

Allocations in the Financials sector have broken below the decade long range.  In their place are increased exposures in Technology and Consumer Discretionary companies.  At the moment, allocations within the sector are consolidating, with Asia Ex-Japan funds actively increasing weights, but still remaining a long way below previous levels. In this analysis, we look at the mechanics of the downturn, identifying the countries and stocks hardest hit.  We then look at the extent to which Financials stocks have consolidated and moved towards the early stages of a recovery.

Allocations in the Financials sector have broken below the decade long range.  In their place are increased exposures in Technology and Consumer Discretionary companies.  At the moment, allocations within the sector are consolidating, with Asia Ex-Japan funds actively increasing weights, but still remaining a long way below previous levels. In this analysis, we look at the mechanics of the downturn, identifying the countries and stocks hardest hit.  We then look at the extent to which Financials stocks have consolidated and moved towards the early stages of a recovery.

Asia Ex-Japan Financials.  Slowly Regaining the Faith.

Alpha-Centric ESG Research

Kyle Rudden

We see those big numbers in the press, almost daily it seems. About ESG assets under management (AUM) reaching US$40 trillion, expected to hit US$53 trillion by 2025. Or about quarterly ESG fund flows nearing US$100 billion, and the seismic shift in ESG AUM to passively-managed funds.Recent growth in SRI (sustainable and responsible investing) and ESG (Environmental, Social, and Governance) assets and investment products would not be possible without the growing ecosystem of index providers, and the SRI/ESG indices and benchmarks that they create.The ongoing boom in SRI/ESG indexing, which shows no signs of slowing, creates new opportunies for investors – and I do not mean investing in indexed mutual funds or ETFs. Too obvious, and too retail. I am referring to emergent opportunities associated with SRI/ESG index arbitrage.Index rebalancing/reconstitution events often create windows of abnormal returns for constituents being re-weighted, added, or dropped. That much is obvious, and the effects of broad market index changes are well-known. For SRI/ESG indices, this is uncharted territory with huge potential.This Smartkarma Original looks at the evolving SRI/ESG indexing landscape, and more importantly the emergent investing (e.g., stocks of listed indexers) and trading (e.g., arbitraging index changes) strategies arising from this global boom in SRI/ESG indices... from an Original perspective.<h2>WHAT'S ORIGINAL?</h2>Typically, discussions about SRI/ESG indices focus on their performance and in the context of that age-old "ESG-Alpha" debate – i.e., whether incorporating ESG factors into the investment process is worth the effort. To be clear, that is an important debate to have (and win). However, this report takes a different angle on SRI/ESG indices by focusing on investing and trading and strategies that capitalise on the boom in SRI/ESG indices. Theory (and a little speculation) backed by analysis.

We see those big numbers in the press, almost daily it seems. About ESG assets under management (AUM) reaching US$40 trillion, expected to hit US$53 trillion by 2025. Or about quarterly ESG fund flows nearing US$100 billion, and the seismic shift in ESG AUM to passively-managed funds.Recent growth in SRI (sustainable and responsible investing) and ESG (Environmental, Social, and Governance) assets and investment products would not be possible without the growing ecosystem of index providers, and the SRI/ESG indices and benchmarks that they create.The ongoing boom in SRI/ESG indexing, which shows no signs of slowing, creates new opportunies for investors – and I do not mean investing in indexed mutual funds or ETFs. Too obvious, and too retail. I am referring to emergent opportunities associated with SRI/ESG index arbitrage.Index rebalancing/reconstitution events often create windows of abnormal returns for constituents being re-weighted, added, or dropped. That much is obvious, and the effects of broad market index changes are well-known. For SRI/ESG indices, this is uncharted territory with huge potential.This Smartkarma Original looks at the evolving SRI/ESG indexing landscape, and more importantly the emergent investing (e.g., stocks of listed indexers) and trading (e.g., arbitraging index changes) strategies arising from this global boom in SRI/ESG indices... from an Original perspective.WHAT'S ORIGINAL?Typically, discussions about SRI/ESG indices focus on their performance and in the context of that age-old "ESG-Alpha" debate – i.e., whether incorporating ESG factors into the investment process is worth the effort. To be clear, that is an important debate to have (and win). However, this report takes a different angle on SRI/ESG indices by focusing on investing and trading and strategies that capitalise on the boom in SRI/ESG indices. Theory (and a little speculation) backed by analysis.

Sustainability and ESG Indices: A Booming Ecosystem and New Investing and Trading Opportunities

China and US Equity Analyst

Roger Xie

<ul>
<li>It is reported that Hong Kong market regulator (Securities and Futures Commission) and market operator <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> are conducting study on the potential SPAC listings (Special-purpose acquisition company).  We believe <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> has always committed to be opened-mind to explore the dynamic and trend of capital market. However, Hong Kong market unlikely adopts the backdoor listings and shell activities such as SPACs. In contrast, regulator intends to simplify listing requirements and encourage more companies to go through regular IPO listing process amid to protect investor interest .</li>
<li>
<a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> has achieved a blockbuster year for IPO market in 2020. The total IPO capital raised has reached HK$ 400bn, a jump of 27% year-over-year. Hong Kong has been ranked No. 2 globally by IPO capital raised and No. 4 by number of new IPO deals. We think the trend will continue and reiterate our call that Mega IPO and Chinese ADR homecoming will  reshape the landscape of Hong Kong capital market in long-run.</li>
<li>SPAC,  also known as a ‘blank check company’, is a publicly held investment vehicle created to merge with a company, thereby bringing the company public. Historically, the types of companies that have gone public through a SPAC have tended to be high-growth companies or those who wanted to raise more proceeds than would have been available to them through a traditional IPO.</li>
</ul>


It is reported that Hong Kong market regulator (Securities and Futures Commission) and market operator HKEX (388 HK) are conducting study on the potential SPAC listings (Special-purpose acquisition company).  We believe HKEX (388 HK) has always committed to be opened-mind to explore the dynamic and trend of capital market. However, Hong Kong market unlikely adopts the backdoor listings and shell activities such as SPACs. In contrast, regulator intends to simplify listing requirements and encourage more companies to go through regular IPO listing process amid to protect investor interest .

HKEX (388 HK) has achieved a blockbuster year for IPO market in 2020. The total IPO capital raised has reached HK$ 400bn, a jump of 27% year-over-year. Hong Kong has been ranked No. 2 globally by IPO capital raised and No. 4 by number of new IPO deals. We think the trend will continue and reiterate our call that Mega IPO and Chinese ADR homecoming will  reshape the landscape of Hong Kong capital market in long-run.
SPAC,  also known as a ‘blank check company’, is a publicly held investment vehicle created to merge with a company, thereby bringing the company public. Historically, the types of companies that have gone public through a SPAC have tended to be high-growth companies or those who wanted to raise more proceeds than would have been available to them through a traditional IPO.


SPACs Coming to Hong Kong ? We Don't Think So

In <a href="https://www.smartkarma.com/insights/carbon-footprint-of-freight-transportation-and-logistics-and-other-esg-issues" target="_blank" data-smartkarma-citation="insights:48581" rel="noopener">Carbon Footprint of Freight Transportation and Logistics and Other ESG Issues</a>, I addressed the most material aspects of global freight and logistics – specifically, its carbon footprint and future direction thereof. It also conveyed optimism, a silver lining around a mostly negative ESG topic.<a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> is part of that silver lining, an unequivocal bright spot, and a company that is more "solution" than "problem" in what is otherwise a problematic space from a sustainability/ESG perspective. JDL is a clear leader in the "greening" and decarbonisation of global supply chains.This is especially important given JDL's China-focus, one of the two largest logistics markets worth nearly US$3 trillion (and growing) of the US$10-12 trillion global total. Whilst an economic boon, the yang that goes with that yin is GHG emissions, and China needs companies like JDL.

In Carbon Footprint of Freight Transportation and Logistics and Other ESG Issues, I addressed the most material aspects of global freight and logistics – specifically, its carbon footprint and future direction thereof. It also conveyed optimism, a silver lining around a mostly negative ESG topic.JD Logistics (JDL HK) is part of that silver lining, an unequivocal bright spot, and a company that is more "solution" than "problem" in what is otherwise a problematic space from a sustainability/ESG perspective. JDL is a clear leader in the "greening" and decarbonisation of global supply chains.This is especially important given JDL's China-focus, one of the two largest logistics markets worth nearly US$3 trillion (and growing) of the US$10-12 trillion global total. Whilst an economic boon, the yang that goes with that yin is GHG emissions, and China needs companies like JDL.

JD Logistics: More Solution Than Problem in a Problematic ESG Space

The collective carbon footprint of global freight transportation and logistics is utterly massive, and growing. Freight and logistics accounts for 10-15% of the world's greenhouse gas (GHG) emissions, or 3.4-5.1 billion tonnes of carbon dioxide (CO2) per year of the world's 34 billion-tonne total. Current GHG mitigation and decarbonisation policies will be enough to fully offset GHG emissions from expected growth in freight transportation and logistics. Projections suggest a 60-80% increase in emissions by 2050, when a decrease of 55-80% is needed to meet the Paris Agreement goals.Climate impacts of trade growth are compounded by how it will shift freight movement from North Atlantic to Indian Ocean corridors, increasing average distances 12%. More critical is the local leg; 10% by tonne-kilometres but 30% of GHGs (inland modes like trucking are more GHG-intensive).On a company level, carbon footprint – present and future – depends on several things. Aside from macro issues like regional fuel mix and climate policies, two big factors are: 1) a company's specific function (e.g., freight trains vs. logistics software), and 2) its decarbonisation initiatives.The collective carbon footprint is a major ESG issue but we should not apply a broad-brush. Freight and logistics companies are vital to the economy and deliver life-critical goods like medication and food. Moreover, companies like <a href="https://www.smartkarma.com/entities/jd-logistics" target="_blank" data-smartkarma-citation="entities:31500:1" rel="noopener">JD Logistics (JDL HK)</a> – are leading a "greening" of supply chains.This is an important ESG issue to watch, but not an "exclusionary screen" by any means.

The collective carbon footprint of global freight transportation and logistics is utterly massive, and growing. Freight and logistics accounts for 10-15% of the world's greenhouse gas (GHG) emissions, or 3.4-5.1 billion tonnes of carbon dioxide (CO2) per year of the world's 34 billion-tonne total. Current GHG mitigation and decarbonisation policies will be enough to fully offset GHG emissions from expected growth in freight transportation and logistics. Projections suggest a 60-80% increase in emissions by 2050, when a decrease of 55-80% is needed to meet the Paris Agreement goals.Climate impacts of trade growth are compounded by how it will shift freight movement from North Atlantic to Indian Ocean corridors, increasing average distances 12%. More critical is the local leg; 10% by tonne-kilometres but 30% of GHGs (inland modes like trucking are more GHG-intensive).On a company level, carbon footprint – present and future – depends on several things. Aside from macro issues like regional fuel mix and climate policies, two big factors are: 1) a company's specific function (e.g., freight trains vs. logistics software), and 2) its decarbonisation initiatives.The collective carbon footprint is a major ESG issue but we should not apply a broad-brush. Freight and logistics companies are vital to the economy and deliver life-critical goods like medication and food. Moreover, companies like JD Logistics (JDL HK) – are leading a "greening" of supply chains.This is an important ESG issue to watch, but not an "exclusionary screen" by any means.

Carbon Footprint of Freight Transportation and Logistics and Other ESG Issues

Hong Kong

Hong Kong Exchanges and Clearing Limited (HKEX) operates a range of equity, commodity, fixed income, and currency markets, providing listing, trading, clearing, and settlement services for securities and derivatives. It also functions as a frontline regulator for companies listed in Hong Kong. HKEX was formally established on March 6, 2000, and is headquartered in Exchange Square, Central, Hong Kong.

Hong Kong Exchanges and Clearing (388 HK)

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Hong Kong Exchanges and Clearing (388 HK)

Asia Ex-Japan Financials. Slowly Regaining the Faith.

Active Asia Ex-Japan managers move back in to the Financials sector after a period of heavy rotation, however allocations remain well below...

Steven Holden

Sustainability and ESG Indices: A Booming Ecosystem and New Investing and Trading Opportunities

Index rebalancing and reconstitution often creates a window of abnormal returns (and opportunity). For broad market indices, these effects are well...

Kyle Rudden

SPACs Coming to Hong Kong ? We Don't Think So

Hong Kong market unlikely adopts the backdoor listings and shell activities such as SPACs. In contrast, regulator intends to simplify listing...

Roger Xie

JD Logistics: More Solution Than Problem in a Problematic ESG Space

JD Logistics is more "solution" than "problem" in what is a problematic space for the environment; a clear leader in the "greening" and...

Kyle Rudden

Carbon Footprint of Freight Transportation and Logistics and Other ESG Issues

The carbon footprint of global freight and logistics is large, growing, and a source of ESG risk for investors. Fortunately, firms like JD...

Kyle Rudden

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