With the rapid rise of environmental, social and governance (ESG) investing, Dynamic is making it easier for advisors to offer this style of “responsible investing” to clients, affording them the opportunity to effectuate change through their investment preferences. ESG factors cover the spectrum of issues, including how corporations respond to climate change and minimize their carbon footprint, to their health, safety and culture policies.
The Dynamic Portfolio Services team has created ESG models with allocations ranging from 0% equity to 100% equity in 10% increments, including the Dynamic ESG 60.
“It’s an all-weather portfolio that is efficient on a long-term basis for clients,” explains Dynamic Chief Operating Officer Craig Morningstar. “With Dynamic’s rules-based approach to model creation, we strive to capture opportunities and enhance the value of the portfolio while managing risk.”
Utilizing index-based ETFs, the new ESG models are focused on the environmental component of ESG and include the same capital market assumptions used in our other model overlays. Desired investment characteristics of the models include:
• ETFs classified as ESG only
• ETFs with minimum AUM of $100M
• ETFs established 3-5 years ago
• ETFs focused on market cap weighting, i.e., better ESG score results in a higher allocation
The new ESG models will be introduced on the Dynamic Resource Call, taking place on March 18, 2021.
Sustainable assets have soared from $639 billion in 1995 to $17.1 trillion today, according to US SIF Foundation data. That’s a third of total U.S. AUM.
Over the past year, advisors’ interest in ESG investing for clients has substantially increased, according to Morningstar. “As with many Dynamic portfolio solutions driven by advisor request, developing an ESG solution is another example of listening to our advisor clients and delivering on their requests.”
For more information on the new Dynamic ESG models, contact the Portfolio Services team.
Because ESG criteria excludes some investments, ESG strategies may not be able to take advantage of the same opportunities or market trends as those that do not use such criteria. This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Advisors should independently evaluate the risks associated with products or services and exercise independent judgment with respect to their clients.
ESG portfolios are designed with a focus on sustainability, and not designed to a specific sustainability target score, nor a carbon budget. In addition, portfolios are not rebalanced with consideration for maintaining a desired sustainability score. Portfolios are rebalanced to reasonably maintain the desired asset allocations of the model. Sustainability score is a simple weighted average per the portfolio model allocation.
The sustainability score is derived from information provided by Morningstar, for each investment. For reference, Morningstar’s sustainability score has a range from 0 to 50, with a lower number being more desirable for sustainable investing. As an additional reference, the S&P 500 has a Morningstar sustainability score of 44. There are no assurances the Morningstar score could or will negatively or positively impact individual investment(s) or the overall portfolio.