Queens’ College, Cambridge has allocated part of its £55m global equity investment exposure to a self-managed portfolio constructed using equity sector ETFs, specifically to exclude extractive and carbon-intensive industries.
Queens’ College, Cambridge has allocated part of its global equity investment exposure to a portfolio of equity sector ETFs.
The move is part of a package of measures developed by specialist consultant ElstonETF to enable Queens’ to respond to the concerns of the carbon divestment lobby without losing sight of primary investment objectives.
It follows the college’s recent adoption of the MSCI ACWI SRI ex Energy ex Materials ex Utilities Index, which includes companies from the MSCI SRI Index universe, and excludes the energy, materials and utilities sectors, as the benchmark for its equity investments.
The University of Cambridge and its constituent colleges have been under pressure from students – backed by the likes of John McDonnell, the Shadow Chancellor, and Caroline Lucas, co-leader of the Green Party – to divest endowment assets from fossil-fuel-related industries.
The portfolio – a sector-adjusted market-capitalisation-weighted global strategy – is managed by the college and built primarily with ETFs from State Street Global Advisors (SSGA), which are among the most liquid and established sector ETFs available in Europe.
SSGA offers a range of equity sector ETFs, covering US (S&P 500), European (MSCI Europe) and world (MSCI World) developed markets. It does not, however, offer any emerging markets sector ETFs, so the portfolio will be underweight EM versus its benchmark (which includes modest exposure to EM) if exclusively using SSGA products. Also, by using S&P 500-linked ETFs rather than MSCI USA-based products, it will be underweight US mid-caps. For property exposure, the portfolio deploys ETFs from iShares.
In line with the mandate, the portfolio will completely avoid the energy, materials and utilities sectors, which are known for their high carbon footprints (as measured by tons of CO2e / $m sales).
Jonathan Spence, Bursar for Queens’ College Cambridge, commented: “This [the strategy] is part of our continued drive to address divestment considerations in an intelligent way without compromising on investment returns or diversification considerations.”
Henry Cobbe, Head of Research at ElstonETF, said: “Our custom ETF portfolios can be designed to enable a targeted approach to delivering on investment objectives subject to relevant constraints and preferences.”
Edward Malcolm, Head of Wealth for State Street ETFs, added: “Using sector ETFs, as ElstonETF have done for Queens’ College, to design a custom ETF portfolio which includes and excludes certain sectors to create a bespoke exposure, is an example of how sector ETFs are moving from satellite to core allocations. We are delighted to see our sector ETFs being used in this innovative way.”
As at 30th June 2017, Queens’ College had an endowment of just over £68m and additional investment assets of about £18m. This was invested in global equities (64% or £55m), cash (7.4%), a charity multi-asset fund (4.8%), residential property, farmland and property unit trusts (14.5%), and private equity and absolute return funds (9.3%).
The total return on the investments in the past year was 16.71% (7.91% in 2016). The college’s existing external investment managers include Heronbridge Investment Management and Sarasin & Partners.