low carbon index investing - responsible investor · low carbon index investing david m. blitzer...
TRANSCRIPT
Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.Copyright (c) 2006 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.
Low Carbon Index Investing
David M. BlitzerManaging Director &Chairman of the Index Committee
Standard & Poor’s
May 6, 2009
2.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Topics
• Developing Low Carbon Indices
• Investing for real people
3.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Low Carbon Indices
4.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Developing Low Carbon Indices - 1
• Stock screening/elimination
– Stocks with high carbon footprints are removed from the portfolio whilemaintaining approximate sector neutrality
– Between 20% and 35% of the names are dropped
• Tracking Error Optimization
– Remaining stocks are re-weighted using an optimizer to minimizetracking error against the original portfolio
• Based on the S&P 500 model
– Carbon reduction of 48%
– Tracking error of 96 bp
5.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Developing Low Carbon Indices - 2
• Optimizer is used to achieve a targeted reduction inthe average carbon foot print across the index
• Results are tabulated to generate a trade-off curvebetween carbon reduction and increased trackingerror.
• The investor can choose the degree of tracking errorto accept in achieving the carbon reduction.
6.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Trade off between carbon reduction and tracking error
0
100
200
300
400
500
0.0 0.5 1.0 1.5 2.0 2.5 3.0
Carbon foot print(GHG per revenue)%
reduction
0
70
Tracking error (%)
7.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Low Carbon Indices
• On March 9th, S&P launched the S&P U.S. Carbon EfficientIndex based on the S&P 500
• Deutsche Bank licensed the index from S&P to create financialproducts offering carbon efficient investments
• S&P is developing a Low Carbon investable index coveringemerging markets based on the S&P/IFCI Investable Index
• The emerging market index is supported by the InternationalFinance Corporation of the World Bank.
• Carbon data provided by Trucost Ltd.
8.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Investing with Indices
9.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Indices Outperform Active Managers
Indices Outperformed ActivelyManaged Funds
89.883.965.1Emerging Market stocks
58.848.850.0Non-U.S. Small Cap Stocks
83.576.564.0Non-U.S. stocks
63.264.059.8Global stocks
85.478.083.8Small Cap U.S. stocks
79.170.174.7Mid Cap U.S. stocks
71.9%64.8%54.3%Large Cap U.S. stocks
5 Years3 YearsOne Year
Source: Standard & Poor’s Index vs. Active; see www.SPIVA.Standardandpoors.com
10.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Indices Work
• Index investing offers lower costs and fees
• Investments are transparent
• Investments can be understood
Carbon indices offer investors anefficient way to reduce the carbon
footprint of their portfolio
11.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Thank You
David M. [email protected]
+1 212 438 3907
12.Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Analytic services and products provided by Standard & Poor’s are the result of separate activities designed to preserve the independence and objectivityof each analytic process. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information receivedduring each analytic process.
www.standardandpoors.com