UBS plans to launch an ESG-focused sustainable investment vehicle in early 2018 – described by its chief investment officer as “the industry’s first 100% sustainable investing cross-asset portfolio”.
Speaking at the UBS Wealth Management Year Ahead Outlook, Simon Smiles, chief investment officer – UHNW at UBS, said the new sustainable offering will be launched on 3 January 2018 in Switzerland and Germany and around the same date in the UK.
It will be available to Singaporean and Hong King investors in April 2018.
Smiles said: “This is a top-down portfolio only allocated to sustainable investing strategies and bottom-up only filled with sustainable investing instruments. The portfolio will explicitly try to engage with companies to improve their environmental and social outcomes. “
Smiles said all of the cross-asset portfolio’s strategies will aim to deliver market returns or better, at the same time as having the sustainability aspect.
Smiles stressed the portfolio launch is not corporate branding or altruism, but is based on demand from clients.
He commented: “There has been active request for something that is truly at its heart sustainable. We believe it will be the world’s first true public equity impact investing strategy focused around environmental and social activism, working with a key partner in the UK. “
As well as allocating to green bond strategies, part of UBS’s sustainable investing portfolio will also feature “gender-focused implementation”.
Smiles explained: “There is a specific strategy focused on investing in companies that have better disclosure, as well as gender diversity. We are trying to reward companies that have a better gender diversity.”
Explaining the context to the sustainable investment vehicle launch, Smiles said the ESG fund launch comes after UBS announced a $5bn target towards impact investing over the next five years. at the World Economic Forum.
He said: “We define impact investments as having intentionality of a specific environmental or social impact as well as a financial return.
“Typically those impact investing opportunities tend to be private market opportunities, so this year we have worked with a range of partners and our clients have deployed large amounts of money into those opportunities.”
Looking ahead to 2018, UBS Wealth Management’s Chief Investment Office (CIO) enters 2018 positive on global equities relative to high-grade and developed world government bonds.
Global 2018 outlook
The wealth manager said global economic growth should continue at the high 3.8% rate witnessed in 2017.
Nevertheless, UBS warned that investors face changing monetary, political, technological, social, and environmental contexts, with three principal risks to the bull market: a significant rise in interest rates; a US-North Korea conflict; and a China debt crisis.
UBS expects central banks to tighten monetary policy and in some cases raise interest rates in 2018.
In certain areas, especially financial services, the wealth manager said this will bring opportunities, except in the unlikely event of significant hikes.
But amid rising rates, it warned that investors will also need to prepare for higher volatility, higher dispersion of returns from individual stocks, and in some cases higher correlations between equities and bonds.
Extreme political scenarios, principally a US-North Korea conflict, remain a low-probability risk for markets. However, politics may have a significant local impact.
In terms of the possible impact of Brexit on the UK economy, UBS economist Dean Turner said UBS’s assumptions are conditional that the UK will move to the second stage of the Brexit negotiations.
He said: “We do not think the Irish border [issue] will be a stumbling block.” However, Turner warned that even a ‘soft Brexit’ is unlikely to be enough to stop a slowdown of the UK economy.”