How does active stewardship add value?
UBS Asset Management has conducted quantitative research into the impact of sustainability on returns.
Our internal back-testing has examined the UBS proprietary factor driver score which identifies the most relevant sustainability factors per industry.2 Through this quantitative analysis, we can better understand and control the inputs into our sustainability variables, as well as control how the score correlates with financial performance.
We examined the performance of an MSCI World Index strategy that is tilted using the UBS factor driver scores, where companies with higher scores are given a higher weighting while companies with poor scores are underweighted compared to the MSCI World benchmark.
The overall back-test showed a positive signal, as the portfolio outperformed the benchmark by 8% over the whole time period, or 0.39% on an annualized basis3.
While the performance was relatively neutral, to slightly negative during the 18 months leading up to the credit crisis, the portfolio began to out-perform the MSCI benchmark in June of 2008, just before the worst period of the crisis in the fall of 2008, and nine months prior to the market bottom in March 20093.
The portfolio has been generally positive since the end of 2012 as markets recovered from the European sovereign crisis of that year.4
Interestingly, these results are similar to those of recent research conducted by the quantitative research team of UBS Investment Bank (IB) which tested the performance results of various tilted portfolios using sustainability scores from Sustainalytics.5