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Quotient Sustainable Alpha  (ESG)

Return and Risk Targets

Sustainable Alpha (ESG) seeks to outperform a large cap benchmark such as the S&P 500 or Russell 1000 while providing exposure to environmental, social and governance (ESG) characteristics. The target return is 1.5% above the benchmark over a market cycle, with an active risk target of 3.0%.

Investment Process

Quotient fully integrates ESG characteristics into its stock selection process to arrive at a single valuation for each stock. Our research has found that ESG characteristics are priced differently across industries: in many industries companies that have strong ESG policies also enjoy a stronger stock performance compared with their peers while in other industries ESG characteristics do not result in better stock performance. This industry-by-industry insight is combined with fundamental, technical, as well as value, growth, and momentum factors from multiple categories to arrive at a unique model for each of 56 industries in the US market. Quotient looks at this information both in terms of relative comparisons between companies in the same industry and trends over time.

Portfolio Construction and Risk Control

The important factors for the portfolio construction process include company valuations with ESG exposure, risk model forecasts, and transaction cost estimates.  These data are used to build a portfolio that has a return target, ESG exposure and desired risk exposures. Risk Management is integral to our disciplined quantitative process. The majority of the active risk comes from individual stock selection, while industry risk and style risk account for a small portion and active market risk is close to zero. This results in a broadly diversified portfolio with no concentrated positions or bets.

PSN top gun rating


Background on our approach is detailed in the white papers below:

Actively Managed ESG Strategies Mainstream ESG Equity Allocations

 
To receive the full version of the white papers, please click here.