Will sustainability-focused investment products come at the expense of returns? Jiang Xiangyang, general manager of Boshi Fund, does not agree with this.
"Emphasizing social responsibility will not only not affect the performance of the fund, on the contrary, emphasizing social responsibility will help enhance the performance of the fund." On the sidelines of the 2019 China Sustainable Development Finance Forum held recently, Jiang Xiangyang accepted an exclusive interview with the surging news (www.thepaper.cn) reporter, who firmly believes that after China moves towards high-quality development, if it wants to get a sustainable development, enterprises must have social responsibility, environmental responsibility, and basic responsibility for stakeholders, including employees and society, only such enterprises can return to investors in the long term.
Jiang Xiangyang also specifically mentioned that although China's economic growth rate is expected to slow down, China's return on assets is still competitive in the world, "the most typical is that the comprehensive ROE (return on net assets) of A-shares is about 9%, and the world cannot find such assets, which is why global capital will continue to enter China's core assets." ”
So, what are the key elements of investing in sustainability?
Jiang Xiangyang put forward four points: first of all, the construction of standards and systems, which need to ensure the reliability and verifiability of the model; the second is to have the localization of the model, for example, when assessing the environmental contribution of enterprises, we cannot simply use the environmental standards of developed countries to require Chinese enterprises, but can take the degree of effort to improve the environment as an observation indicator; third, the social responsibility quality assessment can not be completely data objectified, to improve the professionalism of the evaluation mechanism and team; fourth, as much as possible to get more reliable assessment data. Compensate for incomplete or unavailable data. This also requires the improvement of the quality of information disclosure and the use of some professional, big data analysis methods.
Sustainable finance refers to financial services that create measurable economic, social and environmental value to promote sustainable development, and currently covers many investment methods such as sustainable development investment, ESG (environment, society, governance) investment, green finance, inclusive finance, responsible investment, impact investment and so on.
According to statistics, as of the end of 2018, nearly 31 trillion US dollars of assets worldwide have introduced sustainable investment strategies, an increase of 34% over 2016, accounting for one-third of the total global asset management.
In China, as the concept of sustainable development has become more and more popular, sustainable development investment has also received more and more attention.
On November 15 this year, the CSI Sustainable Development 100 Index was officially released. This index is based on the constituent stocks of the CSI 300 Index as a sample pool, and 100 stocks are selected using the quantitative evaluation model of sustainable development value. The first sustainable development theme ETF product in China, "Boshi CSI Sustainable Development 100 ETF", which uses the full replication method to track the CSI Sustainable Development 100 Index, has been officially approved recently.
Backtesting data shows that from June 30, 2014 to July 1, 2019, the annualized excess yield of the CSI Sustainable Development 100 Index relative to the CSI 300 Full Yield Index exceeded 4%, and outperformed most of the mainstream A-share indexes.
"It can be said that the performance of the sustainability index is also a good performance in the whole market. We believe that as China's economy steadily enters a stage of high-quality development, this excess income will be more obvious and more stable. Jiang Xiangyang said that Boshi Fund regards index funds such as ETFs as an important part of product services, and will further increase its product layout in this regard next year.
Looking forward to the performance of equity assets in 2020, Jiang Xiangyang is optimistic, he believes that China is increasing investment in industrial upgrading, economic transformation, scientific and technological breakthroughs, and the policy environment is very friendly, and the financial supply-side reform of the capital market in 2020 will also be a big drama, so the stock market will have performance opportunities. "But the stock market in 2020 is unlikely to be a generally rising market, and it is necessary to consider the disturbance factors of economic fundamentals and some other non-market factors, so next year is likely to be a structural market."
The following is the full text of the surging news reporter's interview with Jiang Xiangyang:
First, the surging news: 2019 is a year of great development of index funds, especially ETF products, what is the layout of Boshi fund in index products, and how do you think of the sudden outbreak of index products?
Jiang Xiangyang: It should be said that there have been two phenomena this year, one is that the scale of passive index investment in the United States in the world has exceeded the scale of active management. Another phenomenon is that the scale of ISSUANCE and holding of ETFs in China is growing very rapidly.
There are two main driving forces here, one is that the capital market reform needs to vigorously develop equity capital, which is manifested as an equity fund in the secondary market and in the investment industry. This is guided by policy support.
The second important driving force is that indexed investment tools are becoming more and more familiar and accepted by society and the investment community because of their transparency, low cost, convenient trading, and now there are many thematic, industry and smart factors, and these methods do find some investment opportunities in assets with indexation tools.
Now there is a saying that any alpha is a beta, what does it mean? Active management uses the alpha method to find some excess returns, but uses quantitative methods to transform alpha logic into an investment method that can be quantified and identified, in fact, it becomes a beta, it is a certain type of factor beta, a certain type of strategy beta. So this shows that the entire market is increasingly accepting this investment method.
We are even happier that regulators, especially exchanges, as market organizers, have made bold changes in the rules of ETFs. For example, the exchange has introduced a main market maker system to support the liquidity of the fund. Now, more and more derivatives are being pushed, which are conducive to the rich strategy of market makers and conducive to reducing price volatility. These are some of the basic conditions for the development of the ETF market.
It can be expected that with the advancement of these reforms, China's ETF market will get a good period of development opportunities.
The Paper: Looking back at the development of China's index funds, do you think China's ETF products will become Asia's leaders?
Jiang Xiangyang: China's ETF trading volume is the first in Asia, and the ownership scale is the second in Asia, but in 2016, the number of participants in China's ETFs was only 500,000 shares, and by 2019, it has increased to 2.6 million, which shows that etF growth is very promising. As for the size of the ETF, I think it mainly depends on the size of the Chinese economy and the size of China's capital market, which can be imagined.
Third, the surging news: from the perspective of China's economic growth rate, economists seem to be more worried about the growth rate in 2020, will this affect the development of ETFs?
Jiang Xiangyang: Worrying about economic growth and holding Chinese assets are not in conflict, these are two concepts, China's economy has moved from high growth to high-quality development, although the economic growth rate has slowed down, but China's return on assets is still competitive in the world, the most typical is that the comprehensive ROE of A shares is about 9%, the world can not find such assets, which is why global capital will continue to enter China's core assets. So these two seem to be in conflict, in fact, it is two concepts, our growth rate is on the next step, but the economic quality has gone up, the structure is better, and more importantly, in contrast, what are the more attractive assets abroad than China's core assets?
Fourth, the surging news: the performance of equity funds in 2019 is very prominent, many investors feel that "it is better to speculate in stocks than to buy funds", can you look forward to the performance of equity funds in 2020?
Jiang Xiangyang: I am personally optimistic because China is increasing investment in industrial upgrading, economic transformation, and scientific and technological breakthroughs, and then it has encountered a very friendly policy environment. Another reason is that the financial supply-side reform of the capital market in 2020 should be a big drama, and there will be opportunities. However, the stock market in 2020 is unlikely to be a generally rising market, and it is necessary to consider the disturbance factors of economic fundamentals and some other non-market factors, so next year is likely to be a structural market.
V. The Paper: In 2020, does Boshi Fund have any layout plans for index fund products such as ETFs?
Jiang Xiangyang: Bosera Fund regards ETFs as an important part of its product services. Especially because of its low cost, convenient trading, and the risk-return characteristics of the asset are relatively clear and easy to identify, we are indeed interested in providing some products that the market needs and likes. In addition to our wide-based products, we also have industry, theme, smart factors, some products that represent long-term investment opportunities in future assets, we use some technical methods to express these assets through research, through some technical methods, and use indexation methods to provide investment services for the market.
Of course, the market is ultimately the survival of the fittest, and next year we will further increase our efforts in this regard. We released the Boshi CSI Sustainable Development 100 ETF this time, which is also a class of assets and represents a class of assets with values. We firmly believe that after China moves towards high-quality development, in order to achieve a sustainable development, enterprises must have social responsibility, environmental responsibility, and basic responsibility to stakeholders, including employees and society, only such enterprises can return to investors in the long run. So we launched such a product, from the road show situation, many financial institutions are recognized such a stock selection standard and investment method.
6. The Paper: What is the difference between the sustainable development evaluation index system and the traditional financial evaluation index system? What differences will there be in the performance of the fund? Will the emphasis on social responsibility affect the fund's performance?
Jiang Xiangyang: On the one hand, the traditional financial evaluation index system is mainly an evaluation of the company's operating performance results, but the evaluation of the process of how the enterprise achieves this result involves less. On the basis of integrating traditional financial indicators into the evaluation of the company's operating efficiency, the sustainable development evaluation index system adds evaluation indicators for the company's mission vision, corporate governance, corporate culture, corporate social contribution and environmental contribution, etc., which involve all aspects of the company's strategy, culture and operation, and can reflect the development concept of the enterprise. Such a set of measurable sustainable development assessment system can help investors analyze listed companies more comprehensively and effectively, so as to make more accurate judgments on the sustainable development capabilities of listed companies. At the same time, sustainable development investment reflects a sustainable investment concept of coordinated, green and responsible investment, reflecting a value in guiding the allocation of resources.
On the other hand, the financial evaluation index system usually has a set of relatively fixed standards, and the disclosure of relevant information also has a standardized format. Although there are many international guidelines for sustainable development assessment, there is currently no universal set of standards. Bosera's partner Social Value Investment Alliance, after years of research and accumulation, with reference to the United Nations Sustainable Development Goals and the indicator system of major institutions in the world, based on the three standards of accessibility, verifiability and adaptability of indicators to China's national conditions, has built a 3A3 force in line with China's national conditions (in the measurable 3a goals, ways, effects of the indicators reflect the 3 forces, that is, the so-called driving force, innovation and transformation force, also known as driving force, action force, Impact) Sustainability Assessment Model. In fact, the indicators of the CSI Sustainable Development 100 Index have a total of 4 categories and 55 dimensions, 70% of which are sustainable development indicators such as corporate culture, governance, environment and social responsibility, while combining with other 30% economic indicators, and finally select the top 100 constituent stocks with comprehensive scores in the CSI 300, which are weighted by the circulating market value. Visual inspection is a good and consistent excess gain.
We advocate that businesses should use business success to promote social progress. In the business activities of the enterprise, it consciously integrates the sustainable development of the business outlook, development outlook, risk outlook, and has a series of specific systems and management supporting arrangements. Sustainability models look for good companies that combine social and corporate value. We are pleasantly surprised to find that many social responsibility-related indicators also have excess returns in the A-share market, and some of them also show low correlation with traditional financial and market indicators, which adds a new source of excess returns to investment. Therefore, the emphasis on social responsibility will not only not affect the performance of the fund, on the contrary, the emphasis on social responsibility will help to enhance the performance of the fund.
Our backtesting also validated this view, with the CSI Sustainability 100 Index, designed according to the sustainability model, with an annualized excess return of more than 4% relative to the CSI 300 Full Return Index from the end of June 2014 to the end of June 2019. According to a statistic, from the beginning of 2015 to September 30 this year, among the more than 700 active partial stock funds with existing performance, only 31 of them have beaten the CSI 300 every year, less than 5%; the proportion of cumulative performance beating the CSI 300 is only about 40%. It can be said that the performance of the sustainability index is also a good performance in the whole market. We believe that as China's economy steadily enters a stage of high-quality development, this excess income is likely to be more obvious and more stable.
7. The Paper: What are the key elements of investing in sustainable development?
Jiang Xiangyang: The first is the construction of standards and systems. The establishment of standards and systems ensures the reliability of the model, and more importantly, makes the model verifiable, which can ensure that the model is relatively transparent and open to investors. A model that is relatively transparent to investors can help investors better understand the concept of sustainable development, so that they can respond more effectively to market fluctuations in the investment process.
The second is to have the localization of the model. Although the SDGs are universal, different countries have different stages of development, so when establishing models, they must be localized in light of the actual situation of the host country. For example, when assessing the environmental contribution of enterprises, we cannot simply use the environmental standards of developed countries in Europe and the United States to require Chinese enterprises, and when evaluating Chinese enterprises, it will be more reasonable to dig more about the year-on-year change value while considering the environmental protection indicators of enterprises.
In addition, in terms of the sustainable development assessment mechanism and the team, as we all know, the sustainable development assessment can not be completely data objectified, to a large extent, it needs to rely on people to evaluate, how to improve the professionalism and stability of the evaluation team assessment method, to avoid the knowledge gap of a single person, is the key issue to consider. Fund companies may consider finding more specialized external experts as a basis for their internal sustainability research evaluation team.
Finally, in terms of assessment data, an important challenge is the incompleteness or unavailability of data, so ways should be found to obtain as much corporate sustainability assessment data as possible. In addition to the data disclosed by public information of listed companies, you can also find some specialized data companies to more accurately portray the sustainable development of enterprises. In addition, artificial intelligence technology can be used to capture some valuable data.
8. The Paper: In addition to index funds, will Boshi Fund have some other actions in equity and fixed income products next year?
Jiang Xiangyang: Yes, as I said earlier, in terms of equity, we will have industry, theme, smart factors, and some products that represent future asset investment opportunities. In terms of bonds, we will also increase the layout supply of convertible bonds, urban investment bonds, cross-market policy financial bonds and other varieties, which make up for the lack of product supply in China's financial market, so that investors have more choices and are also conducive to improving the efficiency of the entire financial market.
At the same time, we will also establish a set of business models, called full product line services, the whole process of accompaniment. What does that mean? That is to say, I can provide clients with more instrumental options, and at the same time, I can provide clients with full-process investment advisory services. As long as the needs of customers can be well identified, we form a trust and interaction. We will provide customers with which investment tools to configure according to market conditions, so that customers can get a better investment experience. We hope to create a financial service where investors can obtain quality services and product choices, because we have the advantages of a full range of investment varieties, from equity, fixed receipt of goods, from active management, overseas, absolute returns and other product categories, we are all.
9. The Paper: Since Mr. Jiang joined Bosera Fund in 2015, Bosera Fund has broken through the bottleneck and returned to the peak, and the asset management scale has ranked at the forefront of the industry.
Jiang Xiangyang: Our team, including the chairman and I, came to office in 2015, and after we arrived, we did some in-depth research on the situation of Boshi Fund and the competitive situation in the market, and finally from the board level to the operational level, we all felt that the market had a lot to offer. But to be promising, we must ultimately base ourselves on core competitiveness. Core competitiveness can be simply expressed as the competitiveness of investment and research, the competitiveness of products, the competitiveness of services, the competitiveness of innovation, and the competitiveness of science and technology. We ourselves summarize to do a good job in 4 services, 4 services represent service entities, service people's livelihood, service reform, service peers. In recent years, Boshi Fund has adhered to a strategy-driven, a market-driven, an investment-research-driven, and a technology-driven. In the end, what everyone sees is that Boshi Fund goes up to a higher level every year, which is the embodiment of the continuous enhancement of core competitiveness.