09 July 2014
Back to news homeNEST has awarded two new emerging market mandates to HSBC Global Asset Management (UK) Limited and Northern Trust Asset Management to provide members with enhanced access to global growth opportunities.
These two funds represent the eighth and ninth underlying building blocks used in NEST’s suite of default funds, the NEST Retirement Date Funds. The two new building block funds are:
NEST members will be exposed to both of these funds through a blended approach which is designed to provide a superior risk return profile for members at a low cost.
Mark Fawcett, NEST’s chief investment officer, says:
‘We want to capitalise on growth and rewarded risk no matter where it is in the world and these emerging market mandates give us greater control of our exposure to this important asset class. These two new mandates represent an exciting development for NEST and as pure emerging market building blocks they allow us to further refine our approach to managing risk and delivering on our investment objectives by enhancing the global diversification of our portfolios.
‘This is our first exposure to alternative indexing and reflects two of NEST’s investment beliefs that both indexed management, where available, is generally more efficient than active management and that integrating valuation considerations into the investment process can enhance our long-term performance.’
Wayne Bowers, head of Northern Trust Asset Management, EMEA and APAC says:
‘We are delighted to be working with NEST to offer their members our innovative Emerging Markets Custom ESG Equity Index Fund. Not only does the fund offer access to emerging markets with the transparency and cost efficiency of an index fund, but it integrates a norm and sector based screening, in addition to a governance filter for state-owned enterprises.’
Stuart White, Head of Institutional UK at HSBC Global Asset Management commented:
‘The HSBC GIF Economic Scale Index GEM Equity Fund will not only provide investors with access to the exciting growth opportunities that exist in emerging markets, but we also believe our alternative indexation approach, weighting companies based on their economic footprint rather than market capitalisation, will represent the evolving shape of the emerging market economies over time.
‘HSBC Global Asset Management is delighted that NEST has recognised the value of our proprietary emerging markets economic scale index and our expertise in passive management, having also awarded us a Shariah Global Equity Index mandate in 2011. We look forward to further developing our investment partnership with NEST.’
Background
NEST members will be exposed to these two emerging market funds through a blended approach which gives a superior risk return profile as well as a cost effective scalable solution.
Although NEST already had access to emerging markets via the BlackRock Aquila Life Market Advantage Fund, this exposure forms only a small part of the underlying portfolio.
This latest procurement improves NEST’s ability to access this important asset class, and provides greater flexibility for our dynamic risk management approach. We may not initially increase our exposure to emerging market equity significantly, but will continue to monitor our exposure as a matter of course and make amendments when conditions suggest it is beneficial to do so. NEST takes into account both the long and short term when making decisions on the size of asset allocations.
The Northern Trust Emerging Markets Custom ESG Equity Index Fund is managed in the same way as the standard market cap-weighted £124m Northern Trust Emerging Markets Index Fund, but screens out stocks on the basis of certain environmental, social and governance (ESG) criteria. The fund invests in around 740 stocks in emerging market countries. The current size of the fund is £48.6m and is expected to grow. Northern Trust was chosen because it delivers on NEST’s requirement for excellence of investment processes and high quality risk management. In particular, NEST is delighted with Northern Trust’s integration of ESG principles into this fund whereby companies are screened according to a number of criteria, including corporate governance practices. This has resulted in around 80 stocks being excluded.
HSBC’s Economic Scale Indexation (HESI) Fund is designed to weight companies in proportion to their relative economic footprint as measured by certain fundamentals. The fund invests in around 820 stocks in emerging markets and currently stands at a value of $206m. HSBC was chosen because it delivers on NEST’s requirement for excellence of investment processes and philosophy, high quality risk management and the benefits of some exposure to value and rebalancing gain. All of these are likely to deliver strong and repeatable performance for our members.