A shout out for ESG ETF portfolios
Speaking on the thematics panel at etfLIVE Europe 2020 is a natural place for Irene Bauer (pictured), CIO and founding partner Twenty20 Investments, to find herself.
Increasingly, Twenty20 finds itself focusing on creating model portfolios entirely filtered through an environmental, social and governance (ESG) screen. “Going forward all investments will be ESG,” she says.
Bauer, a PhD in what she calls ‘only mathematics’, was in the active fixed income team at Barclays Global Investors and in 2008 was watching their new baby, iShares. “I was intrigued to see that it was very successful in 2008 and actually pulled in money, so I moved over to the ETF business.”
Within iShares, she conducted research and then joined the client solutions’ group, putting portfolios of multi-asset ETFs together for iShares clients and the wider wealth and financial adviser market. It was at iShares that she met her now business partner, Allan Lane (also with a PhD, this one in physics).
“We had seen how the ETF model portfolio market in the US was really successful, so we thought we could do the same in the UK,” she says, commenting on the launch of Twenty20.
The initial plan was to create model portfolios to the UK advisory business and then venture further into Europe.
Two PhDs in the business is not quite the coincidence that it seems, Bauer says, given that Barclays Global Investors was famed for having lots of quants and PhDs in the team. “It’s not that much of a coincidence as those kinds of nerds all met up there,” Bauer says.
Twenty20 now has a four-year track record for ESG ETF model portfolios. “We could just see the trend into ESG,” she says. Once providers had produced ESG fixed income ETFs, Twenty20 could create multi-asset ESG ETF portfolios. The firm also provides ETF passive portfolios for Linear Investments for both offshore and onshore clients.
The biggest driver for business growth in ETFs that Bauer can see is the pressure on fees. “Many are disappointed with active management and prefer to stick with passives which have lower fees,” she says. “ESG is a big growth factor going forward. I can put multi-asset portfolios together easily because of their granularity in the exposures and I can switch clients in and out more easily than selling underlying stocks or bonds.”
Bauer refers to TLC as the greatest strengths of ETFs – not what you might think as in this context that stands for transparency, liquidity and low cost.
Cautiously balanced ETF portfolios have done well year to date, she reports, and also has noted that the Covid-19 pandemic has given people the nudge they needed to look at all three factors within an ESG rating.
“It’s not just environmental but now it’s actually all three: social – as in how do companies treat their employees and then governance in general is the thing that hopefully doesn’t mean that companies in a crisis are doing badly because their governance wasn’t the best.”