Protecting your Savings with ESG Investing
JP Maguire
Head of Intermediary Sales

Over the past year we have seen Irish household deposit savings grow to a record €131.5 billion.

However negative interest rates are eating away at hard-earned cash. Negative rates have been implemented and when you add inflation, they are running at approximately -2.5%. Eurozone inflation in June surged beyond the European central banks target, reaching just below the 2% target in May, hitting its highest level in almost three years. Annual inflation rose to 2% in May from 1.6% in April, driven by a sharp rise in energy prices. Eurostat data released showed inflation pressures varied significantly across the region, with prices accelerating to 3.1% in Estonia while falling to 1.1% in Greece.

Is this inflation transitory as the central banks of the world keep telling us, or are we going to see it increase month on month? Only time will tell. The real risk is a huge negative return on holding cash over a long time.

When you consider the value of €1 over time and add inflation and negative rates, the impact on your purchasing power, as the example illustrates below, this is a substantial negative return. This is the dilemma that savers and investors now have while trying to implement their investment strategies at the right time.

 

Thankfully, there are options for investors who want to grow their money. Funds with environmental, social and corporate governance (ESG) criteria are proving to have staying power and impressive returns. According to the Financial Times, in 2020 stocks with higher ESG ratings had better returns in almost every month.

We launched the Global 85% Progressive Protection Bond in May 2020, relatively early on in the pandemic, and since then its performance has been stellar. This product generates returns from two of our Core Fund range: the Fundsmith Global Equity Fund and the Pimco Investment Grade Bond Funds, which are wrapped by Société Générale. This fund took a couple of years to produce and launch in the Irish market but since then we have seen an impressive performance since inception (+ 12.35%) and YTD (+ 6.86%) with a unique rising guarantee feature for initial investors moving from 85c to just over 95.5c (as of June 30th) out of their initial €1 invested, but also the wide range of investors allocating portions of their portfolios to the bond. From low to high-risk clients, we have seen investors adding to the bond with AUM at €45M invested.

While structured products continue to see a decline due to the negative rate environment we are in, here at Cantor Fitzgerald we have been listening to our clients and intermediaries and are busy working on ESG solutions. We recently launched our innovative ESG 85% Progressive Protection Bond. This bond continuously protects 85% of the highest Net Asset Value ever achieved, it is also an open-ended investment with daily liquidity and pricing, it is a unique offering in the Irish market with no fixed investment term along with no entry or exit penalties.

The performance of the bond is linked to two leading ESG/SRI funds with 5-star ratings from Morningstar for the Robeco Sustainable Global Stars Equity Fund and the Allianz Euro Credit SRI fund. A review of the Robeco and Allianz funds was undertaken to understand their ESG attributes. Both funds are categorised as Article 8 funds, meaning that for the purpose of the Sustainable Finance Disclosure Regulation (SFDR), the structured product can be marketed as an ESG product. Both funds promote ESG characteristics and are required to produce periodic reports on how they meet their ESG attributes.

From an ESG perspective, the two funds provide a different approach to managing ESG issues, with Robeco Sustainable Global Stars Equity Fund showing a more defined and transparent methodology. Given that it is an equity fund, investors also benefit from stewardship practices. This ensures their ESG objectives are also communicated to the companies in which they invest. That Robeco will also start including Principal Adverse Impacts (PAIs) in their engagement with companies is commendable and a clear commitment to the spirit of SFDR.

Another key element of this bond is the continuous upward only capital protection feature, the bond protects 85% of the highest Net Asset Value (NAV) ever achieved. The proven ESG credentials of the issuing financial institution behind the structured product is also reviewed as part of our due diligence and Société Générale was upgraded to ‘AA’ from ‘A’. This leaves Société Générale in the Leaders Position (AA-AAA) of banks managing ESG risks. While we have taken all ESG elements into consideration across all aspects of the bond you can take comfort that this bond has been rated as a low-risk investment under PRIIPS with an SRI (Summary Risk Indicator) rating of 2 out 7 as the maximum capital risk is at 15%. The risk control mechanism aims to maintain index volatility to 6% on a daily basis so that when volatility is low the index will automatically invest up to 100% in the Equity fund. With ongoing daily management of the fund, it may occasionally go to cash if the volatility of both funds is high in times of stress in the markets. This bond is open to all our clients as long as they meet the target market which is informed investors that have some experience of investments and knowledge of financial markets.

With inflation numbers hot in June, global equity markets turned in an impressive performance in the last week of the month with gains of on average 2.2% and record new highs being achieved by both the S&P 500 and NASDAQ. At the same time a record-breaking heatwave broke out across the western US and intensified over the last few weeks.  Climate change and an atmospheric “heat dome” combined to bring about the hottest temperature the region has ever experienced. A new world record high for June of 53.2C (128F) was recorded in Death Valley, California. Climate scientists say these patterns could become a new normal, as the planet keeps heating up.

As we navigate the path to some sort of normality post pandemic, we believe this ESG 85% Progressive Protection Bond is an excellent alternative low risk strategy to diversify and invest for the long term while protecting your savings against inflation and more importantly protecting the environment for the next generation. Invest today to secure tomorrow.

 

Written by JP Maguire, Head of Intermediary Sales at Cantor Fitzgerald Ireland with Carolina Angarita-Cala, Sustainability & Responsible Investing Manager at Cantor Fitzgerald Ireland.

Contact details for each individual team member can be accessed here on our website should you wish to speak with a Portfolio Manager or Account Executive.

 

Warning: The value of your investment may go down as well as up.

 

Warning: Past performance is not a reliable guide to future performance.

 

WARNING: This Investment is a complex investment and may be difficult to understand. Investors should not invest in this investment without having sufficient knowledge, experience and professional advice from their Financial Broker to make a meaningful evaluation of the merits and risks of investing in an investment of this type, and the information contained in this Information Memorandum.