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Global stocks

AXA World Funds – Global Factors – Sustainable Equity I Capitalisation EUR

Rosenberg Equities, the quantitative unit of AXA Investment Managers, manages this strategy and has a long history of systematic and factor-based investing. CIO Gideon Smith leads this strategy and is supported by large securities and ESG research teams, internally and from the wider AXA IM stable. The team undertakes consistent research with slow incremental improvements, rather than the frequent tinkering of typical quantitative strategies. We think this line-up is well-resourced for the approach taken. Incoming CEO Paul Flavier has added some structure with Rosenberg as the broader AXA IM group continues to reshape itself with numerous reshuffles, both in personnel and operationally, over the past few years including its ESG operation. At this stage, it appears these changes have not seeped into Rosenberg which does not appear to have incurred any negative impacts.

We are comforted by the depth and well-documented process at Rosenberg but are watchful of the impact of the parent and its requirements of its subsidiaries. Using the MSCI World Index, this fund ranks each stock based on low volatility and quality factors. The shop seeks diversity by reducing mega-cap exposure using a proprietary weighting mechanism to give a slightly higher small- and mid-cap bias. Rosenberg also applies a machine learning tail risk filter to avoid negative surprises. Finally, although not an afterthought, an ESG component is applied which excludes certain industries entirely and then over- or underweights the remaining 300-600 stocks based on their qualitative ESG scores.

Performance asymmetry has been strong since the inception of the strategy in 2013 with index beating returns coupled with an attractive 80% downside capture ratio, which has become even lower during recent stressed periods. The rally of low-quality, high-volatility stocks in late 2020 was hurtful but Rosenberg’s approach over the long term offers a simple yet effective systematic approach to global equities with significant ESG considerations.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Dividend Stocks Expert Insights Shares

Bank of Nova Scotia Revenue Growth

Its domestic operations are more concentrated in mortgages and auto lending, with leading market share in autos. The bank has been expanding its domestic wealth operations significantly with its acquisitions of MD Financial and Jarislowsky Fraser, making it the third-largest active manager in Canada. The bank has also been making multiple acquisitions in its Latin America footprint as it attempts to consolidate better share within the area.

The international exposure gives the bank the potential for higher growth and return opportunities compared with peers, but it also exposes the bank to more risks. While Latin America has been more stable in the past decade, there are risks that this may not continue. A return to political instability, higher credit losses, and inflation arguably all have higher likelihoods in these emerging markets than for Canada. The unique risks surrounding Latin America’s bounce back from COVID-19 are also worth considering.

After numerous acquisitions, the bank is in the middle of rationalizing its many back-end systems and improving efficiency bankwide. The bank’s original goal was to have an efficiency ratio of 50% by the end of 2021; however, we think this will be delayed, given the less positive economic backdrop caused by COVID-19. We like the bank’s digital efforts. While all banks in Canada are engaged in similar ongoing investments, Scotiabank has been spending the most on its technology and communication expenses. We think these efforts will ultimately pay off in the form of improved operating efficiency, customer engagement, and internal sales coordination. This leads us to believe that returns on tangible equity near 15% are sustainable over the longer term for the bank.

Bank of Nova Scotia is a global financial services provider. The bank has five business segments: Canadian banking, international banking, global wealth management, global banking and markets, and other. It offers a range of advice, products, and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets. The bank’s international operations span numerous countries and are more concentrated in Central and South America.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Funds Funds

BlackRock Global Funds – Asian Growth Leaders Fund A2 USD

The strategy is comanaged by Emily Dong and Stephen Andrews. Dong has been on the roster since the strategy’s 2012 inception alongside previous comanager Andrew Swan, who unexpectedly left the firm and was replaced by Andrews in April 2020. Andrews has 23 years of industry experience, albeit mostly on the sell-side prior to joining BlackRock in 2017. His first portfolio management stint came in April 2018 and his limited portfolio management experience was apparent during our meetings. Dong, who has 18 years of investment experience and 11 years of firm tenure, brings some continuity amid the team change. That said, while she has contributed to the strategy’s solid track record in the past, the views she provided during our meetings have tended to be undifferentiated and we have yet to build conviction on the collaboration between the comanagers.

Our confidence is further dampened by the ongoing instability within the 36-member investment team, which has notably lost several senior portfolio managers and country experts in recent years. The strategy continues to follow a style agnostic approach that combines top-down and bottom-up research, with the aim of outperforming in different market environments. After determining which style factors or sectors to rotate into, the comanagers leverage the fundamental analysts to build a concentrated 30- to 60-stock portfolio.

This is an index-agnostic and high-conviction offering compared with the team’s core Asian equity mandate BGF Asian Dragon, and management has used the flexibility to make drastic short-term position changes to reflect the team’s top ideas. While the approach is reasonable, it depends much on the managers’ intuition and experience in navigating the market, and we are sceptical of the comanagers’ ability to execute the strategy and add value on a consistent basis. Overall, the strategy does not stand out as an attractive option for investors looking for Asia ex Japan equity exposure.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Funds Funds

Candriam Equities L Biotechnology Class L USD Cap

Rudi van den Eynde is among the most seasoned investors in the biotechnology sector. His track record on Candriam Equities L Biotechnology spans over more than two decades. He navigated the fund through periods where biotechnology stocks were unpopular and when they became red-hot. His experience in assessing innovations and market potential is invaluable to the fund.

He receives support from a dedicated and growing cast. Comanager Servaas Michielssens started as analyst in 2016 and assumed portfolio manager responsibilities in 2019. Further support comes from three recently hired analysts and a diverse group of external advisors and industry experts.

While we welcome the additional resources given the complexity and growing number of listed biotechnology companies, we also note that team dynamics changed and the effectiveness of the new members is unproven. Keyperson risk remains high in our view, while their workload is considerable–managing two other strategies that have some overlap. The process rests on a solid foundation of thorough research of clinical data. It is well structured and effectively balances the significant opportunities offered by the industry with the binary outcomes of many biotech ventures and the associated volatility of their stock price.

The managers run the fund with a cautious mindset, diversifying the portfolio over a range of disease types, market caps, and clinical trial stages. Although liquidity is not a concern, the substantial rise in assets for this fund and the oncology fund, which have 36 holdings in common per April 2021, needs to be monitored. Candriam would consider soft-closing the biotechnology fund when combined assets reach USD 5 billion, which leaves about 20% of spare capacity.

Despite uninspiring performance over the recent 18-month period, the strategy’s track record remains compelling over longer horizons. The fund’s R USD Cap share class has beaten both the category average and Nasdaq Biotechnology Index over various periods.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.