Evli wants to carry out its part to restrain climate change and will thereby change its Equity Factor funds to become low-carbon. As of January 16th, 2017 Evli’s Equity Factor funds will track the ERI Scientific Beta Low Carbon factor index.
The ERI Scientific Beta Low Carbon index is composed by excluding the most significant coal mining companies and high carbon stocks, based on carbon emission data from South Pole Group. This results in a low-carbon factor index that has a substantially lower carbon footprint than the market weighted index.
Low carbon factor investing combines the benefits of factors and the considerations of climate risks in a cost efficient way. In addition, the low carbon factor index is efficiently diversified and it has a higher expected return (back-test 2002–2016).
|The carbon footprint of the ERI Scientific Beta Europe Low Carbon index is on average 63% lower compared to a market weighted index, back-test 2013–2016|
|The Sharpe ratio of the ERI Scientific Beta Europe Low Carbon index is 0.40, the Sharpe ratio of a market weighted index 0.15, back-test 2002–2016|
|The outperformance of the ERI Scientific Beta Europe Low Carbon index compared to a market weighted index is 4.1% p.a., back-test 2002–2016|
Evli has done factor investing since 2015. Factor investing combines the academically proven excess returns for factors and an efficient diversification. In addition, investor portfolios benefit from the best parts of both passive and active investing.
Similarly to passive index investing, factor investing is completely systematic and rule-based. Contrary to a traditional market weighted index, factor indexes are exposed to acknowledged factors and have a more efficient diversification.
Factor investing, as traditional active investing, is active risk taking and offers the possibility of higher returns than index investing. The return profile of a portfolio that is diversified into several factors will be more even, as different factors have various cycles.
Evli has for its Equity Factor funds chosen four factors: low risk, momentum, value and quality.
The EDHEC-Risk Institute Scientific Beta is a research institute under the French EDHEC Business School, which offers practical solutions that are based on academic research and associated with smart beta and factors to institutional investors and asset managers. Evli started collaboration with EDHEC in 2014 and our factor funds utilize their indices.
South Pole Group is the global pioneer in sustainability solutions and the world leading provider of carbon emission data. Since 2006 South Pole has successfully developed over 500+ emission reduction projects. Its emission data is one of the most used globally among institutional investors.