Realindex

We believe that global equity markets are not perfectly efficient and that by focusing on systematic strategies we can deliver excess returns over a long-term investment horizon. These strategies are delivered by dedicated investment professionals with a strong background in quantitative research.

We perform ESG research focused on developing a systematic, rules-based implementation that delivers the value proposition for clients. We also apply exclusion of specific companies driven by firm-wide agreements and/or client customisation requests. 

Investment Philosophy and Approach

We believe that markets are not perfectly efficient, meaning that there is mispricing of companies relative to unknown fair values. This mispricing means there is a number of systematic factors such as Value (cheap stocks outperform expensive stocks), Momentum (stocks with strong price trend outperform stocks with low price trend), Quality (poor quality stocks underperform) and Sentiment (stocks with a favourable earnings outlook outperform stocks with a weak earnings outlook). Exploiting market mispricing can deliver excess returns over and above that of the market over a long-term investment horizon. 

We use systematic strategies to target these factors with the goal of outperforming traditional market cap weighted indices. These strategies may vary from rules based non-price weighted methodologies such as the Fundamental Index or Equal Weighting, to customised solutions that can target a combination of factors. We invest across a diverse range of equity universes, including All World, Developed and Emerging Markets, and Australian Large and Small Companies.

Team Profile

The Realindex team comprises eight dedicated investment professionals, with a strong background in quantitative research. The team is led by Andrew Francis, who has more than 20 years' investment experience in consulting, funds management and investment banking. 

Our dedicated team of portfolio managers and analysts are responsible for research, portfolio construction and implementation. We work collaboratively to develop robust and considered solutions which meet our clients' needs and deliver value. 

Megan Ford, a Portfolio Manager with over seven years' industry experience, is the team's RI lead. 

8
12
yrs
4
yrs

Stewardship And ESG Integration

As part of our Stewardship responsibilities, we exclude specific companies involved in munitions and armaments across all of our portfolios, as well as apply screens to exclude tobacco and other ESG Red Flag companies for certain clients. We believe that voting on company resolutions is an important responsibility of any equity holder and we vote on company resolutions using the services of CGI Glass Lewis. 

The incorporation of ESG into the Realindex investment process remains an important and ongoing area of research for our business. Our research and design focuses on developing a systematic, rules-based implementation that delivers and/or insures the value proposition for clients. Currently, attention to Governance is an outcome of our investment process as we include a Quality component that measures the financial strength of a company, providing a correlation with good corporate governance.

We currently subscribe to the following ESG research providers: Reprisk, Sustainalytics, MSCI, Regnan, Reprisk and Ownership Matters, in addition to engaging CGI Glass Lewis for proxy voting. This has enabled us to incorporate a range of responsible investing metrics and underlying historical data into our comprehensive factor library with global coverage. Access to this data has facilitated ESG research into customised client solutions, with a particular focus on the interaction between ESG awareness and Realindex portfolios. Please refer to our case studies below for some examples of this research.

"The incorporation of ESG into the Realindex investment process remains an important and ongoing area of research for our business."

 

Investment Information And Performance

Investment characteristics

Average turnover across all funds
(Five years annualised)
18%
Stock name retention over five year period 65%
Number of holdings
Realindex Global Share Fund
 1358

 

Top five holdings
(as at 31/12/2016)
All funds aggregated
BHP Billiton Ltd
Commonwealth Bank of Australia
Westpac Banking Corporation
Australia and New Zealand Banking Group
National Australia Bank
Top five active holdings
(as at 31/12/2016)
Realindex Global Share Fund
Industrial + Commercial Bank of China H
Oil Co Lukoil 
Petrochina H
Agricultural Bank of China
China Construction Bank H

 

Performance and investment characteristics are as at 31/12/2016
Performance is quoted pre-fees and in $A terms. 
Source: First State Investments
Please follow this link for information on how our RI and Stewardship Measures are calculated. 

Performance

Portfolios outperforming their relevant benchmark over five years
(Weighted by size of fund)
48.34%
Weighted average of outperformance
(Five years annualised. Weighted by size of fund)
1.16%

Absolute return over five years
(to 31/12/2016)
Realindex Global Share Fund

17.25%

 

ESG Profile

The following tables incorporate third party information to provide additional context. We believe that providing an independent view of some typical ESG issues facing the industries and countries where we invest helps to emphasize the importance of considering ESG factors, as well as the value that this approach can add to investment outcomes. These risks are not company specific, but are relevant to the team's larger industry and country exposures.

This contextual information should be considered alongside the description of the team's approach to integrating and engaging on ESG issues, and the company-specific case studies provided. Taken together a more complete view can be formed on how the team is able to generate value through responsible investment and stewardship.

Typical ESG Risks by Sector

The bar chart below counts the number of times different risks have been flagged by Sustainalytics as being material for the different sectors the team invests in. The line graph does the same, only as a weighted average based on the value of the team's holdings in each sector across all portfolios. These risks are generic for the industry and may be different for individual companies. They also don't reflect how individual companies are managing the risks. 

Sector Split

Typical ESG - Risks by Sector

Climate Change

The section below provides additional, team specific, information on climate change. Further information on our approach to climate change can be found in our climate change statement. 

Team Climate Change Statement

Given our focus on systematic strategies and the data dependencies that this requires, there are a number of challenges to overcome in order to systematically incorporate an awareness of climate change into our portfolios. More specifically, carbon data is a relatively new disclosure requirement and there are a number of concerns with the manner in which it has been provided. In particular, carbon footprinting without contextual information on how carbon emission intensity influences investment decision making, or around the limitations with the footprints themselves can be misleading. As such, we actively monitor developments in this space and continue to partner with clients to conduct research in this area.

Holdings in companies with material fossil fuel revenues 

The table on the right outlines the companies which the team invests in that have exposure to fossil fuels. There is no revenue, cost curve or other threshold applied and so the fossil fuel exposure should not be seen as a guide to the risk of stranded assets, however it is reasonable to expect that the attention paid to the risk of stranded assets by teams will correspond to their fossil fuel exposure.


Number of Companies % of Funds
Number of companies 2462 100%
Fossil Fuel Companies inc gas 258 22%
Total 258 22%
Companies with Gas Reserves 127 14%

Carbon exposure

The table on the right provides an overview of the team's carbon exposure. The first measure provides an equity ownership approach to accounting for the emissions, while the second set of numbers provides a guide of how efficient the average company held is versus other companies in that industry group. The chart below shows the difference between the two. 

The carbon emissions, fossil fuel and revenue data have been provided by MSCI. 24% of the carbon emissions data has been estimated due to gaps in company disclosure and 3% were not covered. Companies without carbon or revenue data have been excluded, hence the difference between these and the fossil fuel numbers. Please see the RI and Stewardship Measures page for more information on how these and other metrics have been calculated.


Equity Share Carbon Emissions Number of Companies Team Average Team Company Intensity Number of Companies (GICS) Industry Group (Global) Average Industry Group Intensity (Global)
Utilities 1816840.27 128 2529 146 2527.71
Materials 1055854.94 245 1014.14 304 1012.22
Energy 634045.82 163 477.23 177 456.8
Transportation 291687.3 89 554.05 106 522.71
Food & Staples Retailing 55230.07 50 40.51 57 40.52
Capital Goods 52077.43 221 74.19 261 77.34
Diversified Financials 35150.2 111 112.32 129 114.45
Telecommunication Services 31188.73 84 63.19 92 63.76
Automobiles & Components 25649.89 71 37.77 92 37.81
Food Beverage & Tobacco 24027.81 96 91.63 131 92.38
Other 66695.25 1168 61.46 1433 59.89
Grand Total 2299223.96 2298 144.58 2782 141.59

Difference Team Average Intensity vs Industry Average Intensity

Fossil Fuel and carbon information are as at 31/12/2015 (most recently available), holdings information is as at 31/12/2016
Source: MSCI

Proxy Voting

The team believes that voting on company resolutions is an important responsibility of any equity holder and votes on company resolutions using the services of CGI Glass Lewis. The team votes in line with CGI Glass Lewis recommendations, which have been formulated to promote high standards of corporate governance. In certain circumstances the team may override CGI Glass Lewis' recommendations where they believe it is in their clients’ interest to do so. Due to the systematic nature of their investment approach, the team maintains a separate proxy voting policy which is available on our website.

The team's live proxy voting record is available here

Proxy voting history by type of resolution

The table below contains the proxy voting history for the team by issue type. The chart provides the same information for 2016.


Abstain Against For 2016 Total
Audit/Financials 39 12 1451 1502
Capital Management 40 184 2304 2528
Director election 215 1049 14735 15999
Director Remuneration 29 39 616 684
Executive Remuneration 3 281 1366 1650
General business 30 96 1185 1311
Governance related 80 433 3088 3601
M&A 9 8 274 291
Remuneration Related 1 172 848 1021
Shareholder proposal 1 382 255 638
Shareholder rights 9 190 797 996
Grand Total 456 2846 26919 30221

Proxy voting information is as at 31/12/2016
Source: First State Investments / CGI Glass Lewis

 

Please follow this link for information on how our RI and Stewardship Measures are calculated. 

Votes by Region

The chart below shows the number of times the team have voted in each region.