UBS partners with Hermes on sustainable portfolio

UBS Global Wealth Management has partnered with Hermes Investment Management to create a Sustainable Development Goal (SDG) fund that will form part of what it claims to be the UK’s first 100% sustainable portfolio.

Heartwood adds lower-risk options to sustainable range

The sustainable range will feature three portfolios – yield, balanced and growth – and is due to launch in the UK by the end of June.

UBS GWM has already launched versions of the sustainable portfolios in Switzerland and Asia Pacific. In six months the wealth manager said it has raised CHF 1bn (£760m) from Swiss investors.

The wealth manager’s strategic asset allocation team will invest across the sustainable equities and bonds spectrum, from green bonds to “best in class” ESG equities and bonds, as well as thematic equities or companies which tackle a particular environmental or social challenge.

It will also be investing in an area that it refers to as “ESG engagement equities”. The wealth manager devised a strategy with the help of Hermes to identify small to mid-cap companies that are meeting various sustainable development goals or SDGs.

In 2015 the United Nations came up with 17 SDGs, spanning socio-economic issues such as poverty, gender equality and climate change.

The engagement piece is the riskiest area in the portfolio, but it will also be the biggest driver of returns, the team believes.

ESG engagement equities currently makes up 14% of the balanced mandate.

“We partnered with Hermes because they have an extremely strong track record on engagement and ESG,” explained Chris Ironfield, client investment specialist at UBS.

“This is a new fund and it is a new idea to have a fund that invests specifically along the lines of SDG.”

Hermes is soliciting feedback from academics at Oxford and Zurich University to assess the impact of the SDG fund and whether or not it is making a positive difference.

Green assets

The safest asset in the sustainable portfolio are AAA rated World Bank bonds, which are backed by multiple governments with the aim of financing economic development.

UBS GWM claims the sustainable portfolio is the first ever pooled investment vehicle to get access to World Bank debt for private wealth clients.

The balanced mandate has 13% in World Bank debt currently.

On the green bond side, the portfolio will invest in the iShares MSCI Green Bond fund and Amundi Green Bond fund.


According to the team, the sustainable portfolio will have similar risk and return characteristics to its traditional portfolios.

It expects the Sustainable Balanced portfolio to produce identical sterling returns to its Global Balanced portfolio of 3.8%. But it will carry less risk than the traditional global mandate with volatility of 7.7% versus the latter’s 8.5%.

The team will not use an exclusionary screening process when selecting funds to invest in, preferring a blend of ESG integration and impact investing.

“An exclusionary approach is a fantastic way to align your values to your portfolio. It’s not so useful if you want to change the world around you,” said James Purcell, head of alternative and sustainable investments at UBS.

“What we are suggesting instead is to integrate sustainable factors into your investments to make better decisions and to engage with those companies you don’t like to help improve their practices rather than closing your eyes to them.”

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