LU2715298308

Goldman Sachs North America Enhanced Index Sustainable Equity Fund

A unique indexing approach that integrates a holistic ESG process crafted in-house to provide passive market exposure with improved sustainability;NNIP’s 20+ years experience in sustainable investing and its partner Irish Life Investment Manager’s 25+ years of index replication expertise;Proven track record that has kept the tracking error within targetRetail share class with a 100% trailer fee rebated back to Endowus investors to achieve lower cost of access.The Fund differentiates itself in that while being passive in nature, it has integrated a full-fledged ESG process to improve the sustainability characteristics of the portfolio. In the passive ESG investing space, on one hand, some providers track a mainstream index and apply minimal exclusion, leading to low tracking error but limited ESG outcome. On the other hand, some choose to track a sustainable index, leaving the definition of sustainability dependent on the index provider. In addition, this approach would also lead to large tracking error/concentration risk when compared to a mainstream index, making one wonder whether it is truly passive. Compared to those approaches, the Fund stands out in two ways: firstly, its sustainability process is developed in-house and more sophisticated than many peers. Secondly, it is able to track the mainstream index (MSCI North America Index)’s risk and return closely.For the whole NN (L) Enhanced Index suite, NN IP partners with Irish Life Investment Manager (ILIP). NN IP has 20+ years experience in sustainable investing while ILIP has 25+ years of index replication expertise. NN IP is responsible for screening the index universe on their ESG characteristics and behaviours and later on monitoring the portfolio and universe, as well as exercising responsible ownership. On the other hand, ILIP is responsible for optimising the screened universe to keep the risk and return profile of the portfolio as close to the MSCI North America Markets index as possible.NN IP’s sustainable investing expertise has enabled a holistic ESG process that is crafted in-house. The screening is a three step process: firstly NN IP screens out companies that have controversial behaviours and products. Examples are controversial weapons, tobacco productions, adult entertainment, inefficient oil drilling such as arctic drilling, and UN Global Compact Violators. What is worth highlighting is that while most managers depend on external data vendors to flag controversy, NN IP’s Controversy Engagement Council can at times identify serious controversies and make faster decisions to remove the names from the universe. Secondly, top 30% emitters in each sector are identified and instead of removing all of them, which would be good on the surface level but actually ignoring their economic roles, they would identify those with the biggest carbon reduction results and targets and bring them back to the universe. This is a forward looking element as markets could reward those who contribute to carbon reduction over time. Lastly, the 10% in each sector with poorest governance scores are excluded from the universe. The universe is continuously monitored by the team, and are refreshed quarterly. NN IP also engages on behalf of investors with companies on ESG controversies and material ESG themes. They vote for every company they own and disclose voting information on their website.Since the inception of the strategy, it has kept the tracking error within the 1.5% target. With its competitive pricing, we believe it offers a solid option for investors seeking passive exposure to MSCI North America Index and with improved sustainability. It could also be an alternative for investors who find accessing active ESG funds too expensive.There are no index derivatives and securities lending involved in the Fund. However, investing in this Fund involves taking on regional risk, so we advise that investors should diversify their holding of this Fund with exposure to other regions and asset classes to build a more robust portfolio.