Combine strengths with Index-Selection-Equity
ETFs follow a passive management approach. The portfolio management merely seeks to replicate the performance of a financial index (e.g. an equity index). Such a strategy does not involve the analysis and selection of individual securities or market segments, but replicates the overall market that is represented by the index. Thus, the costs of ETFs are generally lower than those of active funds. These funds are aimed at generating added value versus the benchmark through active management – whether by way of asset selection or asset allocation. This can be financial in nature (e.g. a higher return) and/or non-financial in nature (e.g. higher ESG quality). Here, the decisions are based on a comprehensive analysis of financial and ESG criteria for the respective instruments and market segments.
Active fund of funds with favourable cost structure and investments in equity ETFs
In January, Raiffeisen Capital Management launched its first fund of funds that brings both investment styles together: Index-Selection-Equity.
The fund invests in equity ETFs as part of an active fund of funds management approach.
The goal is to achieve better performance for the fund versus the benchmark through targeted investment decisions.
The benchmark for Index-Selection-Equity is the MSCI All Country World (MSCI ACWI) index. This equity index tracks the performance of companies from 23 industrialised countries (weighting of 90%) and 24 Emerging Markets, which have a weighting of 10% in the index.
The fund offers both active management components and a favourable cost structure.
Here’s how the investment strategy of Index-Selection-Equity works!
At least 50% and up to 100% of the fund volume is invested in regional and single-country ETFs. The fund strives to achieve as little deviation from the MSCI ACWI as possible for the performance of this component. Up to 50% is invested in thematic ETFs, depending on the availability of attractive investment themes. The term “theme” is intentionally defined quite broadly so as not to exclude any promising ETFs if possible. This can include countries, sectors, small caps, or growth shares, for example.
Impact of active selection of ETFs on performance
The active inclusion of thematic ETFs is intended to enable the fund to outperform the benchmark. This would not be possible with a purely passive investment approach due to the costs involved with the ETFs.
Active vs. passive management?
This refers to two different investment styles whose selection depends on several factors.
Why not a sustainability-oriented investment?
At its core, sustainable investment is about the targeted channelling of capital flows in order to have a positive impact on sustainability issues. This requires each individual issuer to be intensively assessed. This analysis of individual securities is the prerequisite for investment decisions that take sustainability factors into account. When employing ETFs, on the other hand, investments are made in the entire market without further differentiation – precisely because the ETF invests in all of the names that are included in an index. Therefore, assets are inevitably included that would not be considered under a sustainable investment approach. As such, it is clear to see why Index-Selection-Equity is not designed as a sustainable investment.
Investors who are specifically interested in investing sustainably can choose from a wide range of actively managed, sustainable Raiffeisen funds.
What is an ETF?
An ETF (exchange traded fund) is a fund that is traded on equity exchanges and tracks an index by investing in the securities that are included in that index. ETFs are a relatively cost-effective option for investing in the broad market.