We've made a few changes to the sustainable portfolio, on both the equity and the bond side. This means we're now pursuing our investment strategy even more precisely.
Factoring ecological and social criteria into product selection while never losing sight of the goal of the broadest possible diversification: both of these guide the product selection for our sustainable portfolio. That was evident in the final weeks of last year, too. Together with the annual rebalancing, we swapped out a number of ETFs so that the portfolio meets the criteria of our investment strategy even more efficiently.
There were changes on the bond side in particular. We sold the Lyxor Green Bond and the Invesco Euro Corporate Bond ESG because companies in the respective ETF portfolios had breached the UN Global Compact. The UN Global Compact brings together ten principles and 17 goals for sustainable development (the “Sustainable Development Goals”).
More government bonds, lower costs
The Invesco Euro Corporate Bond ESG ETF is not being replaced by a new ETF. Instead, we've increased our holding in the Lyxor ESG Euro High Yield ETF, which was already in the portfolio. The Lyxor Green Bond ETF is being replaced by the Amundi Euro Government Tilted Green Bond. This newly added product brings government bonds into the sustainable portfolio for the first time in any meaningful volume. The selected ETF draws as far as possible on “green bonds” and only falls back on conventional ones when there aren't enough green bonds available. These changes reduce the carbon footprint by a further 50 tonnes. At the same time, the total expense ratio (TER) in the bond portfolio falls to 0.19 percent.
On the equity side, the total expense ratio now stands at 0.30 percent, which is also somewhat lower than before. Here, the adjustments were primarily about bringing the factor exposures back closer to the goals of the investment strategy. That's why we increased the weighting of large caps in developed markets and shifted part of “Value” into “Size” in emerging markets.
The background: to achieve the best possible diversification, five factors play a decisive role for us.
Apart from the “equity market” factor, however, there are no individual ETFs that bring factors into the portfolio in pure form. There are, admittedly, special factor indices and ETFs based on them. But regardless of the name of such specialist products, they always reflect several factors at once. This is because every share carries several characteristics that shape its performance. And every index, or every ETF, therefore contains several factors. That's why, when putting the portfolio together, we pay close attention to whether the combination brings the intended factor weighting into the portfolio. Only in this way do return opportunities and risks end up in the most optimal possible balance.
With these adjustments, the sustainable portfolio is once again perfectly balanced in this respect, on both the equity and the bond side. And with the annual rebalancing, it is at the same time once again fully aligned with each investor's individual risk profile. Together, these two things ensure that return opportunities can be captured over the long term with a clear conscience, without taking on unnecessary risks.
