A sustainable and active offering for your clients
Why active equity?
Our product offering within active equity is focused on strategies where we believe an active investment style can sustainably add value for your clients, compared to passive alternatives.
Why LGIM for active equity?
- Size, scale & access: Investment teams benefit from the scale of our £1.3 trillion assets, which gives us market leading access to corporate management teams
- High conviction: As active investors, we manage concentrated portfolios through bottom-up fundamental analysis, comprised of high conviction ideas driving high active share.
- Long term investors: We are long-term investors, typically investing for 3-5 years, which we believe allows us to potentially benefit from compounding growth and to capture value creation
- ESG investing: This is a core part of LGIM from investment integration to our global cross-asset research and investment stewardship teams, with a firm level commitment
The key characteristic that runs through all our strategies is our focus on stock selection, driven by bottom-up, fundamental analysis. Our research process aims to uncover stocks where we believe their full potential upside is not correctly priced by the market.
We look to integrate ESG factors into our investment decisions as part of our investment philosophy. We adopt a framework that focuses on sustainable growth, responsible practices, company quality and ESG materiality. The team will consider how sustainability factors influence both investment risks and opportunities facing each company. In doing so, we look to buy and hold companies that have best in class or improving ESG credentials on financially material criteria. In addition to an investment philosophy of owning businesses with sustainable business models at attractive valuations, our concentrated approach towards investing allows us to drive better returns through engagement. By doing so, we look to discuss key eco-social responsibilities and the potential to enhance performance from positive impact that rewards long-term investing.
Integrating ESG factors to be part of the fundamental view of a sector or a company starts by acknowledging that ESG has a meaningful impact on valuation either in the assessment of the inherent risk or in identifying opportunities. In-depth sector research, knowledge and experience allow us to identify which ESG factor is more or less financially material.
Each of our active products can choose to incorporate this analysis in different ways, either to suggest that the current valuation appropriately prices in for the ESG risk or in cases of high scoring companies on high valuations, we choose to pay up for higher quality of earnings and/or management reflected in a lower discount rate based on reduced volatility of a likely inherent risk.
Integrating ESG into an active approach should at a minimum improve investor awareness of risks, but if used appropriately, provide another tool to better craft one's knowledge and skill set as an investor.
We use insights, knowledge and engagement to help us look beyond the data. A standardised approach to establishing companies’ ESG scores is based on their disclosure. Often there are data errors or simply a lack of reporting that hurts a company’s score. In addition, scores by their nature are backward looking, based on facts and company disclosure on their latest filing. However, we recognise the need to look beyond a rear-view mirror approach, with a focus on where the company is heading, not where it has been. We look to combine proprietary ESG scores, with an assessment of materiality as part of our Active ESG View tool that allows us to overcome disclosure challenges, and to take a forward-looking view. Further, we look to incorporate the SASB based approach to analysing financial and social materiality, whilst assessing underlying data to establish potential impact from achieving the UN Sustainable Development Goals.
Our concentrated approach to investing ensures that we are equally focused when it comes to engaging with corporate management. As part of our regular engagement we look to interact with companies across various management levels to better understand the business model, share our view on capital deployment and discuss its long-term strategy around growth and sustainability. Through our engagement we hope to influence, support and encourage positive change that benefits all stakeholders.
The value of any investment and any income taken from it is not guaranteed and can go down as well as up, and investors may get back less than the amount originally invested.