A Letter from Our CIO Adapting to a Rapidly Shifting Investment Landscape
This marks my first newsletter as CIO of State Street Global Advisors’ Global Equity Beta Solutions (GEBS) business, having commenced this role last September following Lynn Blake’s retirement. As I write this, the pandemic-related market uncertainty that has characterized the last two years has being replaced by uncertainty related to the Russia-Ukraine conflict
As we adapt to the rapidly shifting investment landscape in these historic times, I am comforted by the resilience our Global Equity Beta Solutions business has demonstrated throughout the past year. New milestones were achieved yet again in 2021. At the end of the fourth quarter of 2021, our equity indexing book had over $2.67T in assets.
This growth was partially buoyed by the forward march of equity markets in 2021, but it also
reflects our success in building on key initiatives — most notably a sustained commitment to the evolution of our ESG business, which reached new levels of demand in 2021.
When reflecting on my strategic vision for the GEBS business in 2022, I see the need to continue to build on 2021’s core initiatives as well as to ensure that the highest-quality client service continues to support our work. I’d also like to share my team’s forward-looking thinking across three key areas:
ESG ESG continues to upend the status quo in the index industry, and the asset management business more broadly. While projections vary depending on how ESG assets are defined, Bloomberg recently estimated that ESG assets are on track to exceed $50T by 2025.1 Last year we gained some new clarity around ESG trends, such as an increased focus on sustainability to drive investment processes, as well as a push toward the standardization of sustainability disclosures. These key trends, along with several others, are featured in 5 Key Trends in Indexing.
Climate Driven by the global race to net zero emissions, institutional investors are using new methods to integrate climate considerations into their portfolios. Some clients are building portfolios with explicit carbon-reduction targets, temperature-alignment goals, or climate objectives such as mitigation and adaption. This trend away from pure divestment of fossil fuels has been aided by advancements in data and risk management, as well as by portfolio construction tools. In Reducing Carbon in Equity Portfolios we explore the merits of different low-carbon frameworks and show how an optimization-based approach can help balancecompeting objectives — such as reduced carbon footprint and tracking error — in an indexed strategy.
Indexing Indexing still remains at the heart of what we do, and the GEBS team is constantly evaluating what improve upon. Decisions around index changes, corporate actions, and how we implement client flows have the potential to augment index performance, either through improving returns or reducing trading costs in a risk-controlled way. In Core vs Core+ Indexing, we explore the techniques used to generate value for client portfolios and the options available based on the mandate or universe.
A sustained level of uncertainty seems likely to remain with us for the foreseeable future. We remain committed to helping investors meet the challenges of an uncertain world through actively monitoring index-relevant events and responding fluidly to support the interests of our clients and stakeholders.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. Investing involves risk including the risk of loss of principal.
The views expressed are the views of John Tucker through March 11, 2022, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
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