Ongoing market volatility — due to rising interest rates, geopolitical risks, and inflation — has investors on the hunt for more defensive approaches, like dividend strategies. And investors prefer strategies that take responsible investment (RI) into consideration. In fact, 73% of investors want their advisors to discuss RI opportunities, according to the 2022 RIA Investor Opinion Survey.
The search for dividends and RI creates an opportunity for advisors to help clients. In mid-April this year, Desjardins launched the Desjardins SocieTerra Global Dividend Fund for retail investors. It’s one of the first ESG (environmental, social and governance) dividend funds on the retail market. Jean-François Girard — Manager, Mutual Fund and Guaranteed Investment Development, at Desjardins — discusses how a dividend RI fund can meet client needs.
Q. Why is there a need for this fund now?
A. Current market volatility and the recent performance of many dividend stocks have created increased interest in this kind of strategy. In response, with the portfolio manager Sarasin & Partners, we offer a new option for investors seeking to invest in high-quality, cash-generating sustainable businesses that have the capacity to pay rising dividends over time. This can lead to lower earnings volatility and lower share price volatility for the company compared to the market, which is key for investors.
Q. Can you detail how a dividend RI fund can add to a portfolio strategy?
A. The fund is an unconstrained multi-thematic equity strategy. Sarasin & Partners is looking around the world to invest in top-tier companies and provide a premium level of dividend income. The fund is also a high-conviction portfolio of 40 to 60 stocks with a long-term investment horizon, and low anticipated turnover. It’s a strategy with high active share.
The fund considers ESG analysis in every step of the process. We exclude specific sectors or companies based on their activities. We identify climate risks and opportunities and assess how companies are positioning themselves to manage these risks and capture the opportunities inherent to the low-carbontransition. Sarasin & Partners uses a tool called CVaR (Climate Value-at-Risk), which translates the risks and opportunities of climate change to an investment perspective. Basically, this tool shows you how climate change impacts the valuation of a business. It can be positive or negative, depending on the company.
Further, Sarasin & Partners invests based on five key RI megatrends: aging, digitization, evolving consumption, automation, and climate change. These megatrends will play a role in shaping our future for a sustainable society.
Q. What competitive advantage does the fund provide advisors?
A. The SocieTerra Global Dividend Fund is an RI fund that meets investor demand. And through a global dividend strategy, it provides a specific dividend target so investors can generate cash flow. The focus on the five key megatrends is really a key distinction, and the defensive and active approach of the strategy helps to manage risk.
Q. How does an RI fund differ from other dividend funds?
A. There are only a few dividend-oriented RI funds in the market. So that’s the key distinction. The minimum dividend target with this fund is 15% more dividend income than the MSCI World Index.
And the megatrends we focus on are also of note. Aging, for example, is really interesting because the world’s population continues to increase. So this means the pattern of consumption will shift, bringing opportunities in financial services and healthcare. Meanwhile, automation will result in increased productivity and be supported by falling technology costs and the way we use AI. It will sweep across all industries. Some sectors are already there, but most are in the early stages of adoption. So it’s a great opportunity for us.
Also, many funds focus on mature companies. But we even look at disruptive-growth companies, which typically aren’t included in dividend portfolios. These companies have the ability to grow through innovation and disruption, and are starting to profit, providing investors with cash flow and dividends. Based on their experience, our portfolio manager saw that these companies provide superior risk-return over time. So it’s interesting because the market usually underestimates their potential and misprices this kind of company.
Q. Whom is this fund designed for?
A. We developed the product to meet the needs of all retail investors looking for an RI approach and cash flow through dividends. It was a good challenge for us to develop this fund while respecting our robust RI policy. The goal was to ensure investors can attain higher dividends and still meet their RI goals.
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