Luxembourg headquartered Candriam Investors Group is a EUR112 billion fund management group focused on environmental, social and governance (ESG) investing. The firm is part of the New York Life Insurance Company group and so when it decided to launch ETFs in June last year, it had the resources of fellow NY Life’s IndexIQ ETF team to call upon for support and advice.
Koen Van de Maele (pictured), Global Head of Investment Solutions and Member of the Executive Committee says: “We used the branding of IndexIQ, Candriam’s sister company within New York Life. We had a lot of discussions with them as to what the ETF market is like and worked with them to learn how to make ETFs. But in the end, this is purely a European project based on Candriam’s values in ESG and socially responsible investing (SRI).”
Last June saw Candriam launch five ETFs, three equity and two fixed income and they have raised assets of EUR400 million across the range so far.
“A lot of small ETFs launch with seed money of EUR5 million or EUR10 million but we started with a decent amount which has grown over time.”
Van de Maele says that they were keen not to replicate what already exists on a big scale in ETFs. “We had the freedom to design a new kind of index which we think for long term investors offers a better start than existing indexes.”
Candriam integrated ESG elements in the selection of the companies and the bonds within their index. “We strongly believe that is another intuitive and logical way to pick a company. You need some degree of selectivity and most of the average investors would be pleased to see some sort of selectivity. It is common senses for us to avoid badly scored companies from an ESG point of view, because long term, these companies will run into trouble.”
Market cap weighted indices cover the most expensive stocks in the most expensive sectors, Van de Maele says. “For the average investor that is not intuitive at all. We broke with this and we don’t do market cap. It’s much more intuitive with a starting point of relevant profitability, with smart beta tilts on the top to improve the return characteristics of the portfolio.”
Candriam transferred their methodology to index provider Solactive who have constructed the index.
“We sat with Solactive to create these five Solactive Candriam Indices.”
Van de Maele says that the thing that is nice about being new to the industry is that they could afford to be substantially different.
“We are not doing the same as everyone else so we had the freedom and luxury to set ourselves apart and reflect on how we would see an optimal portfolio by integrating these portfolio construction techniques and ESG screening.”
The new ETFs reflect both of the rapidly growing trends within the industry – ESG or SRI plus smart beta – and applied it to equities and fixed income. Incorporating these within fixed income was particularly challenging.
“We are very pleased to have won the most innovative award because we believe we dare to be different and innovative so we are really delighted to have that recognition,” Van de Maele says.