Sustainable investment management firm Osmosis Investment Management is launching a UCITS fund to provide investors with absolute returns, uncorrelated to equity markets, while delivering a significantly reduced net environmental footprint.
The Osmosis MoRE World Resource Efficiency Fund – Sustainable Market Neutral takes long positions in global listed companies in developed markets that are demonstrably the most efficient in using energy and water inputs while producing the least waste, per unit of revenue generated. It takes short positions in the least efficient stocks – constructing a portfolio targeting both a financial and an environmental return.
The investment team identifies resource efficient and inefficient stocks using the Osmosis model of resource efficiency (MoRE). The firm writes that this is a unique proprietary investment database developed in 2010 that standardises, quantifies and values corporate energy and water use, and waste creation, relative to revenue generation across 33 economic sectors.
From this database the Osmosis research team have developed an uncorrelated alpha generative investment factor, The MoRE factor score. This resource efficiency factor is uncorrelated to other style characteristics such as growth, value and momentum. Using this factor within the portfolio construction process enables the investment team to develop a market neutral, sector neutral, style factor and dollar neutral portfolio.
This approach, backed by academic evidence, is also the basis for eight Osmosis long only strategies and funds for institutional clients with aggregated firmwide assets of USD1.5 billion.
The new fund launches on 3rd August 2018, with GBP30 million of seed money from a European asset owner. At launch, the portfolio comprises 200 holdings with the long book 87 per cent more resource efficient than the short book using the Osmosis efficiency metrics
Ben Dear, Chief Executive Officer at Osmosis Investment Management, says: “Asset owners around the world are seeking responsible and sustainable investment opportunities – without sacrificing return on the altar of sustainability. We looked at the lack of solutions in the alternatives space and used our tried and tested process to create a market neutral fund that rewards resource efficient firms and penalises inefficient ones. It offers clients much needed absolute returns, uncorrelated to equity markets, with a significantly reduced net environmental footprint.
“This is an exciting next step for Osmosis. We’ve seen substantial new inflows of USD1 billion in the last 12 months, as clients increasingly share our conviction that resource efficient firms outperform their same sector peers – and that economic and environmental returns need not be mutually exclusive.”
The backtested return profile of the fund reveals annualised gross returns of 8.28 per cent; Volatility of 6.68 and a Sharpe ratio (assuming cash of 0 per cent) of 1.44.