78% of our Active Quantitative Equity strategies beat their benchmarks over a five-year horizon.*
We are active managers, focused on solving investment problems. Built by a team with decades of experience, the stock-selection model that informs all of our solutions contains our best investment insights — carefully scrutinized, extensively tested and grounded in a strong economic rationale.
Companies and investors are increasingly focused on the factors that influence sustainability. We, as investors, are seeking practical and effective ways to incorporate ESG (environmental, social, and governance) considerations into portfolios. Our investment intuition: that ESG could serve as a quality metric that would indicate management’s focus on long-term growth prospects and the company’s exposure to regulatory and public-relations risk.
A 10-person working group with a wide range of investment experience and expertise conducted a thorough analysis of the current data sources, external research, and academic literature on ESG to form a hypothesis: “Behaving in a sustainable way should lead to better long-term performance. Firms that rank poorly on ESG may be more prone to chronic organizational issues and may be more exposed to regulatory risk and to the prospect of public scandals. This, in turn, could adversely affect stock valuations.”
The group determined that tailoring their ESG analysis by industry would provide the greatest insight. The group consulted multiple experts to identify consistent ESG themes across industries. These insights were used to create a proprietary AQE “materiality map,” which identified the relevant ESG-related characteristics, by industry. Before testing the map, the team identified the important lenses through which to view its effectiveness. The time horizon for expected payoff was one such lens: To the extent that the map helped to predict performance, would it do so over, say, the next week? The next year? Longer? The team expected the map to help to predict outcomes over periods longer than one year.
To construct a model based on the AQE materiality map, the team sourced data from well-established, highly-respected vendors, analyzing its quality before making a final decision on data sources. The map was then applied across the different specific ESG indicators to generate ESG scores for every company in the investable universe. The team ran extensive tests using historical data to assess whether the results of the new model were consistent with their hypothesis and expectations. The team also tested the impact of incorporating ESG into our stock-selection model, which is employed by all AQE strategies.
Having demonstrated that inclusion of the ESG signal did, in fact, enhance our stock selection model, the team presented its findings to State Street Global Advisors’ Technical Committee and to its Investment Committee for rigorous evaluation and verification of research protocol. Following this intensive evaluation, the ESG signal was ready to be incorporated into the model. As a result, the team now proactively includes ESG-related information in evaluating the alpha potential of thousands of stocks globally.
In Active Quantitative Equity, we view ESG as an alternative, non-traditional quality signal that captures difficult-to-measure corporate characteristics, which are diversifying compared with traditional measures of financial quality. Our upgraded ESG signal embraces the benefits and scale of the Sustainability Accounting Standards Board’s reporting framework and State Street Global Advisors’ leading-edge ESG data infrastructure.
As quantitative investors, we focus on keeping a balance between the various elements that drive markets. In early 2021, China consumer stock prices and EPS estimates began to diverge.
How investors view Emerging Markets (EM) investing can vary widely, even within State Street Global Advisors. Laura Ostrander from our Fundamental Growth and Core Equity (FGC) team and Chris Laine from our Active Quantitative Equity (AQE) team to discuss four key topics that are relevant to EM investors
Where have all the expensive, high-sentiment stocks from July of 2020 gone? Recent months have seen a realignment of the value and sentiment themes. More companies that appear to be a good value – that is, those that look attractively priced on fundamentals – are also showing positive investor sentiment.
For more than 30 years, research and innovation have been at the core of our efforts to deliver outperformance for our clients.
Contact your State Street Global Advisors relationship manager, or email us to learn how to invest in AQE.
*As of 12/31/2018, 78 out of 100 strategies outperformed on a gross-of-fees basis over a five-year horizon. Strategies did not outperform for all periods. Past performance is not a guarantee of future results.