Growth at a Reasonable Price (GARP) is a well-known, much-practiced investment approach. It is a fundamental-driven investment strategy that balances pure growth and pure valuation, as the former tends to invest in high-growth, yet expensive stocks, while the latter may take a long-term investment to pay off.
A quarter of all professionally managed assets now incorporate environmental, social, and governance (ESG) considerations,1 from the impact of climate change to equality and human rights. The rich history of S&P Dow Jones Indices (S&P DJI) in this area began in 1999 by pioneering ESG indexing with the launch of the Dow Jones Sustainability Index (DJSI), which marks its 20th anniversary in 2019.
In our previous blog, we looked at the S&P Factor Indices’ ESG exposures, showing that factor exposures can have an influence on ESG scores. In this blog, we’ll discuss these scores at the sector level and see how implementing an ESG or carbon reduction strategy on poorer ESG-performing factor indices can help investors gain not only factor exposure but desirable ESG exposures.
The performance of U.S. equity factors during Q2 was lackluster, with most underperforming the S&P 500, as seen in Exhibit 1. While Minimum Volatility and Low Volatility were notable exceptions, Value, Quality, High Beta, and Momentum all lagged the benchmark – in large part because of their tilt toward smaller companies. Since most factor indices are not cap-weighted, their out- or under-performance tends to parallel that of the equal-weighted 500.
Readers of this morning’s Wall Street Journal learned (on the front page, no less) that many of the largest investors in the U.S. equity market hold similar portfolios. “The overlap in the top 50 stockholdings between mutual funds and hedge funds…now stands at near-record levels, a study by Bank of America Merrill Lynch found.