Foresters: pioneering ESG investing

Low-key asset manager has over $44 billion AUM

In recent years, investor interest in “value based” investing has been on the rise. Today, this investment strategy takes many forms with environmental, social, and governance (ESG) investing leading the way.

While ESG investing has been a bit of a niche strategy historically, it has been gaining more traction in the mainstream, as ESG screening has evolved to finding any well-managed companies that have very strong governance frameworks and that have the potential to be good investments. The view now is that the companies with sound ESG policies have the potential to add alpha over the long-term.

As ESG filtering moves more into the mainstream, we find many companies you would not think of as being proponents of ESG investing have in fact been practicing it for many years.

One such company is Foresters Asset Management, an asset manager with more than $10 billion in retail, institutional, and asset liability matching investments in Canada, and nearly $44 billion worldwide. In Canada, Foresters bought Aegon Capital Management about a year and a half ago, picking up six imaxx branded mutual funds

I recently had a chance to sit down with Suzanne Pennington, Chief Investment Officer of Foresters, to discuss the firm and how ESG plays a key role in the investment selection process across the firm’s mandates.

Since taking over Aegon, Foresters has made some additions to the equity team, both in terms of personnel and refining the investment process. They are focusing their efforts in the areas of the investment landscape where they have the highest probability of adding value.

The fixed-income and equity teams together review the full capital structure of a potential investment, helping them to find the best investments. The process used is a disciplined, holistic, fundamental approach that blends a mix of quantitative and qualitative analysis to better understand the risk and reward profile of the company and its business, as well as its industry as a whole.

One of the more interesting things the team undertakes is an “old school” SWOT analysis (strength, weakness, opportunities, threats), which highlights the factors likely to lead to success or failure of the company. The managers also do in-depth financial modeling that focuses on the fundamental value of the company, rather than focusing on the share price. Further, they calculate the potential upside and downside for each investment opportunity

In addition to the traditional investment valuation considerations, ESG has always played a role in how Foresters manages money, with ESG being implemented in four key ways:

1. Product exclusions – avoiding in companies that have significant exposure to tobacco, gambling, pornography, or weapons.

2. ESG ranking – how each investment prospect stacks up compared with its global peers based on its ESG rating as scored by Sustainalytics or internally.

3. Controversy rating – how historic and potential controversies that could impact a company or industry.

4. Positive change – whether a company can help enact positive change through corporate engagement.

Historically, the imaxx fixed-income funds have consistently delivered above-average returns over the long-term. Equity offerings have been less consistent, but Foresters believes its changes to the team and the investment process will lead to better longer-term numbers. I will continue to watch these funds in the coming quarters.

Along with NEI (which last year took over Meritas and OceanRock) and Guardian Capital, Foresters is another option for those looking for true ESG investing options.

ESG investing has evolved over the past few years to take a broader view of the world. Today, ESG investors no longer have to settle for second-best in the search for good performance. Instead, I believe that you will be able to both invest according to your conscience and generate solid returns.

Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.

Notes and Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.