Feb 20, 2020 Sustainability

"Part of the solution"

Gunnar Friede has been managing the DWS ESG Multi Asset Dynamic fund for 15 years. Bringing the fund into line with DWS sustainability criteria has so far not harmed its performance - to the contrary, as Friede explains in this interview.

  • The DWS ESG Multi Asset Dynamic fund has been around for 15 years. Now retail investors can also access the fund, which has a 5-star rating from Morningstar.*
  • Only stocks that meet high ESG criteria and have good financial performance indicators make it into the portfolio.
  • According to Gunnar Friede, the outlook for ESG investments might even better than for standard investments in the long term.
4 minutes to read

"The great thing about a multi-asset fund is, of course, that the fund management team can use the entire range of investment instruments - including green bonds."

Gunnar Friede, Director / Senior Fund Manager ESG Multi Asset & Solutions

Gunnar, you have managed the DWS ESG Multi Asset Dynamic fund for over 15 years.[1] What sets it apart?

Well, it’s a very successful balanced fund that tries to bundle an optimal mix of sustainability and financial performance into one fund solution. I would emphasise two points: firstly, the fund’s strong performance since its launch in 2005, and secondly, of course, our comprehensive ESG approach, which sets us apart from many traditional multi-asset funds.

Could you describe the fund’s investment philosophy for us?

DWS ESG Multi Asset Dynamic invests in the higher-yielding parts of the market - mainly equities and corporate bonds. For many years, it has also pursued a strategy aimed at reducing the portfolio’s CO2 emissions. Fossil fuels, for example, are completely excluded. At the same time, we are consciously investing in areas that promote the energy revolution, so for example in the renewable energy and energy efficiency value chain. Companies that make a contribution to these themes currently account for about one third of the portfolio. The great thing about a multi-asset fund is, of course, that the fund management team can use the entire range of investment instruments - including green bonds.

Gunnar Friede

Director / Senior Fund Manager ESG Multi Asset & Solutions

What is the advantage of this broad asset class mix?

We are simply much better able to take advantage of opportunities in different markets. At the same time, a mix of global equities and bonds allows us partially to offset individual asset class fluctuations and thus reduce risk.

And how exactly do you determine which securities do in fact meet environmental, social and governance (ESG) sustainability criteria?

We have developed our own software system, the so-called ESG Engine, for this purpose. It can identify those investments that meet our ESG criteria. A multi-stage process, in which certain activities such as coal, tobacco and weapons manufacture are first excluded, drives this engine. Companies that violate recognised standards for social, environmental and business ethics are also removed. The remaining securities are valued in accordance with our ESG criteria and placed in six categories. The spectrum ranges from "A" - ESG pioneers, to "F" - ESG laggards. For our fund, we mainly select investments from the top half, but we do also include a few companies with potential to improve from the D-band.

What role do carbon dioxide emissions play in your selection?

A very big one. Measuring a company’s carbon footprint is a separate stage in the testing process. The worst 25 percent are excluded at the start. The fund's carbon footprint is about two-thirds smaller than a comparable benchmark. We also check the positive or negative effects of using a company’s products and services.

How do you deal with bonds?

The evaluation process for corporate bonds is the same as for shares. There is a separate logic for government bonds, which puts a high priority on basic democratic rights, among other things. A high proportion of our bond portfolio is currently invested in green bonds. We also invest actively in issuers such as the European Investment Bank and the KfW, whose loan portfolios are to a large extent used for sustainable projects.

This structured approach is part of the picture. But fund managers usually have a personal signature too that shapes a fund. What’s yours?

Alongside social and governance principles, the environment is very important to me. I look very closely at ecological performance criteria, i.e. not just CO2 efficiency and avoiding emissions, but also water consumption and proportional use of recycled materials. Beyond that, I don’t just want to avoid and exclude, but also to be part of the solution. That's why I also invest in the renewable energy value chain and in forestry companies with net reforestation.

And how do you find suitable candidates that meet these criteria?

Financial and extra-financial factors must go hand in hand. In addition to quantitative pre-selection, I take a close look at the goals that companies have set themselves for the future and how holistic they are in taking sustainability into account. Ratings and ESG indicators primarily reflect the past. The outlook is of course much more important. That's why a company’s sustainability strategy is a very important criterion for me in the selection. I also think it’s extremely important that the company’s development perspective is credible.

Why should investors bother with ESG at all?

ESG criteria broaden our perspective on companies. I would venture to suggest that companies with good ESG performance are better and more prudently managed than others. Investors who only look at classic financial indicators are ignoring many important value drivers that may later become financially relevant, such as working conditions, environmental standards and corporate ethics. In the long term, these issues can be the difference between success and failure. They are therefore worth addressing. It is part of our responsibility towards our investors and society.

"ESG is not a fad but a structural trend."

Gunnar Friede, Director / Senior Fund Manager ESG Multi Asset & Solutions

There is quite a lot of hype about ESG right now. Is there a danger that the topic will die a death at some point?

I don't think so. ESG is not a fad but a structural trend. Ten years ago, large sections of the industry were still discussing whether it was actually permissible to integrate sustainability criteria into the investment process as part of their fiduciary responsibility. This is now clearly defined, at least in the European Union. I am therefore pretty sure that ESG will be the new normal very soon. Things are moving fast in Europe at the moment, but the industry still has a way to go before it achieves broad and holistic ESG integration.

Does compliance with sustainability criteria actually have a measurable effect on performance?

Yes, it does. And it is by no means the case that investors have to pay for having a good conscience with weaker performance - quite the opposite.

Performance in the past 12-month periods LD

Period

Net

Gross

04/18* – 01/19

-2.9%

2.0%

01/19 – 01/20

14.5%

14.5%

Past performance, [actual or simulated], is not a reliable indication of future performance.[2]

As of: End of january 2020; Source: DWS International GmbH

Risk information DWS ESG Multi Asset Dynamic LD

  • - Market-, sector- and company-specific price volatility
  • - Price losses on the equity- and commodity markets
  • - The price of the fund units may be negatively affected by yields rising/prices falling in the bond markets
  • - Issuer-, counterparty-, credit history- and default risk
  • - Currency losses
  • - The value of the fund's shares may fall below the price at which the client originally bought them.

Key data DWS ESG Multi Asset Dynamic

  • - ISIN: LU1790031394 
  • - Category: Mixed funds
  • - Currency: Euro
  • - Fund assets: EUR 170.71 million
  • - Issue surcharge: 5.00%.
  • - Flat rate: 1.500%.

* Copyright © 2020 Morningstar Inc. All rights reserved. The information contained herein 1. is copyrighted for Morningstar and/or its content providers; 2. may not be reproduced or distributed; and 3. is not guaranteed to be accurate, complete or current. Neither Morningstar nor its content providers are responsible for any damage or loss arising from the use of this information. Past performance is no guarantee of future results.

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1. More information: https://www.dws.de/gemischte-fonds/lu1790031394-dws-esg-multi-asset-dynamic-ld/

2. The gross value development (BVI method) takes into account all costs incurred at fund level (e.g. management fee), the net value development additionally includes the front-end load; other costs may be incurred at investor level (e.g. custody account costs), which are not included in the presentation.

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