St James’s Place (SJP) is developing a range of low-carbon passive solutions, but industry participants have questioned why the range is just targeting carbon as part of a commitment to responsible investing more widely.
The plans, which SJP said are still in the development, are not the wealth manager’s first foray into passive but will enable it to better compete against the likes of US low-cost passive giant Vanguard, which announced earlier this year its intention to enter the UK advice space, and the Schroders and Lloyds Banking Group tie-up, Schroders Personal Wealth.
> See also: Schroders price war with SJP could be met with apathy
The low carbon range is slated to be launched over the next 12 months and will be overseen by SJP director of investments Rob Gardner, co-founder of pensions investment consultant Redington.
Gardner told the Financial Times the aim of the funds was to achieve a “trade-off” between a low-carbon footprint, low tracking error compared with the benchmark and low fees, but insisted it would not be a race to the bottom on charges.
“Ultimately, this is about client outcomes,” he said. “Our key focus is on creating high-capacity, low-carbon solutions as part of our broader commitment to responsible investing.”
‘Odd’ to focus solely on carbon
CWC Research managing director Clive Waller said it was “odd” the range is focusing on just carbon.
“Surely the issues are climate change, good governance, life cycle and supply chain management, diversity and so on? For the biggest wealth manager just to focus on carbon seems odd. Most major wealth managers are or will be developing ESG, sustainable and responsible investment strategies.”
But according to SJP’s annual report, the firm embeds ESG factors into manager selection and monitoring and portfolio construction processes for all its funds through a dedicated responsible investing team.
It said: “Our investment management approach takes ESG factors into account throughout the lifecycle of our clients’ investments. We factor ESG into our pre-investment process by assessing an investment manager’s approach to ESG, as well as building it into our post-investment assessment by reviewing an investment manager’s on-going monitoring and engagement process.”
The report also noted, according to its proprietary assessment process, 70% of its managers were rated ‘good’ or ‘excellent’ for their ESG processes in 2019, up from 33% in 2014.
Low tracking error might limit portfolio to omitting only certain sectors
Seven Investment Management senior portfolio manager Peter Sleep said in relation to low-carbon portfolios, the omission of coal comes across as more of a marketing exclusion than an economic one given there are so few listed coal companies.
“As there are hardly any listed coal companies any more, this exclusion does not impact your tracking error or how you track the index,” he said.
Sleep added there are other exclusions that are more marketing than economic like controversial weapons, but not all weapons, and companies that have been sanctioned by the UN.
“The controversial weapons bumps out BAE in the UK for making scatter bombs and, I believe, VW in Germany has been sanctioned, but even then all these exclusions do not really have an impact on tracking error.”
Sleep added: “If you are serious about low carbon perhaps you could also exclude oil companies, car companies, conventional power companies, airlines and so on, but this would of course lead to very high tracking error and could impact the promoter commercially.”
Passive is a shift away from third-party active mandates
On an active basis, SJP does already have the ££816m St James’s Place Sustainable and Responsible Equity fund in its stable. The fund, run by Impax Asset Management, looks to embrace the clean energy transition, advancement in healthcare technology and the mitigation of climate change.
> See also: SJP mandate helps Impax post positive inflows during coronavirus sell-off
SJP is known for offering third-party active funds under its own brand and it had used Neil Woodford to run a £3.5bn mandate until the demise of the stock picker last year.
Last month, SJP reported funds under management (FUM) toppled from £117bn at the end of December to £101.7bn by the end of March. Closing FUM was 2% lower than the year before when assets hit £103.5bn. It also slashed its final dividend by a third, showing it is not immune to the Covid crisis.
SJP has sought in recent months to alter its perceived public image after criticism of high fees and an alleged macho culture, as well as lavish incentives such as cruises and cufflinks awarded to its best-performing sales staff.
