Absolute return strategies

“Absolute return strategies” encompass a diverse array of alternative investment strategies managed by various experts. At Anthos, we construct portfolios with a diversified mix of managers and strategies to achieve our goal of positive returns (“absolute returns”) regardless of the direction of equity and fixed-income markets. For example, global macro strategies invest based on managers’ top-down economic and political views, including interest rates, currencies, commodities, and equities. Trend-following strategies aim to capture market trends using algorithmic or quantitative methods to spot trends across asset classes. Assessing this broad universe and our portfolios on ESG and sustainability metrics is significantly complex.

These challenges are reflected in the metrics we choose to report at Anthos, particularly using the IMP methodology. According to this framework, 68% of our portfolio is invested in funds that may cause environmental or social harm, while 30% is invested in funds that act to avoid harm. Notably, 3% of the portfolio is invested in funds benefitting stakeholders. See Figure 19.

Along other aspects, our approach includes qualitative assessments of company culture. Notably, many managers avoid investments in coal mines, Arctic drilling, and weapons without formal restrictions, reflecting a spirit of unconstrained investing. We are aligning our PRI questionnaire more consistently with those for equities and fixed income, including relevant questions based on whether managers invest in equities, bonds, or commodities. This alignment involves a separate section on derivatives and shorting. Additionally, we are expanding our work on the Carbon Disclosure Project concerning shorting.

The Standard Board for Alternative Investments (SBAI)’s principles for greenhouse gas emissions accounting are relevant to our asset class. These principles emphasise comprehensive emissions measurement, standardised methodologies, transparency in reporting, regular monitoring, engagement with stakeholders, integration with investment processes, target setting, and continuous improvement. For example, when exclusion of unsustainable companies is believed to result in a higher cost of capital for those businesses, shorting their stock would result in an even higher cost of capital. This underscores that every action, including short selling, has an impact.

One notable investment made in 2023 was an energy transition fund, which includes investments in battery metals essential for energy transition solutions. Despite its benefits, managers are not required to report under SFDR Article 8 or 9 to maintain flexibility. The senior management team of this fund engages with top mining companies on environmental management, health and safety, and anti-corruption, highlighting the complexity of defining sustainable investing in this space.

We believe that being a responsible investor in the absolute return space involves focusing on governance, social impacts, and fair market practices. We seek managers who can navigate such complexities effectively, where ESG risks are addressed alongside ensuring robust financial returns.

Our engagement strategy captures exclusion agreements in side letters, ensuring transparency. In terms of ESG teams and resources, the firm’s size often dictates priorities, with risk management typically coming first unless the firm is emission-driven.