Carrying out due diligence on potential positions for a fund holding can be a laborious task involving lots of documents, data and dialogue – and rightly so when you consider the risks involved.
But some fund managers are looking at more obscure metrics in their investment analysis, particularly in the evolving sustainability space.
Here, three fund managers share their ‘out of the box’ metrics:
Harvesting the diversity premium
By Julie Bech, portfolio manager of Nordea’s Global Diversity Engagement strategy
Diversity, Equity and Inclusion (DEI) business practices are a good quality indicator, pairing well with other proven return drivers. Therefore, in managing our Global Diversity Engagement strategy, we screen for businesses promoting DEI in addition to exhibiting attractive fundamentals.
To do this, our screening model assesses DEI profiles and looks to categorise companies from ‘laggards’ to ‘leaders’. This unique process is based on four pillars – Leadership Diversity, essentially how diverse the leadership levels are; Talent Pipeline, how diverse a company is relative to diversity in the workforce; Inclusion, how inclusion and equity of various groups are promoted; and Diversity Change, which measures positive or negative corporate diversity trends. Through this process, we can determine a ‘diversity score’. While diversity laggards fall out of the scope of our investment universe, engagement is often an effective tool to influence and guide companies to accelerate DEI agendas.
A good example of a company that screens as a diversity leader in relation to our four-pillar assessment is US home builder Taylor Morrison, which is well advanced compared to the benchmark and its sector average. While operating in the traditionally male-dominated home builder industry, the company displays strong female representation, having reached gender balance on its board of directors and in the workforce. Additionally, the company’s CEO/chairman is female. There is also a focus on age, nationalities and ethnicities, enabling the company to better target the increasingly diverse homebuying population in America. Taylor Morrison also embeds many policies and initiatives to support DEI progress. Specific attention is drawn to the acquisition and development of diverse talent pools, expanding data disclosure and promoting belonging.
Making climate disruption investable
By Elisabeth Steyn, founder of Tema AI
The weather has historically been overlooked as a systematic risk factor in global markets, yet it is one of the most fundamental forces shaping commodity supply, agricultural yields, energy production, and economic growth. As a constant, it has been easy to overlook. But constancy is no longer guaranteed.
We developed a model for translating global weather volatility into actionable financial signals. Investors use our foundational dataset to understand how climate patterns – both longer-term events (precipitation, temperature, atmospheric pressure) and short-term disruptions (droughts, floods, fires) – impact production risk across key commodities, from grains to energy inputs.
The predictive value of this type of data goes beyond short-term price movements. Understanding the economic impact of extreme weather is key to anticipating macro conditions and outcomes. It is an increasingly material driver of disruptions that reverberate through supply chains and economies, ultimately shaping GDP and inflation. In a recent report, for instance, the European Central Bank warned that over 90% of weather-related financial risk could reach the European economy through its global value chain exposure – relative to direct physical hazards.
Those indirect transmission channels are typically underrepresented in traditional market and climate risk data alike. By mapping weather to real-world outcomes, investors can not only mitigate risk but also identify and capitalise on new sources of alpha in – and build trading strategies for – an increasingly volatile world.
Actively following the herd
George Cotton, commodities portfolio manager at J. Safra Sarasin
Commodity futures markets offer interesting and unique return opportunities which can be better exploited once structural and seasonal dynamics, which impact the demand for long or short hedging by commercial players, are well understood. One interesting example is in the livestock futures markets, which have grown in prominence and liquidity within the US over the past half-century.
Cattle ranching is a highly risky and capital-intensive operation, ranchers need access to financing to buy land, young calves, feed, water, veterinary services and to pay wages. Once livestock are grown and ready to be taken to market, ranchers do not have the option of waiting if prices at auction are not attractive, because livestock are very expensive to transport or store. For these reasons, ranchers are compelled to lock in prices ahead of time by shorting longer-dated futures. However, on the other side, restaurants and food processors typically do not buy meat using long-term contracts, which creates a gap in the demand and supply for hedges – which investors can take advantage of.
Alongside this, there are also unique seasonal dynamics that inject additional uncertainty into cattle markets during certain parts of the year. Demand for beef typically peaks during the summer months, while cattle supply becomes more uncertain due to the higher risk of drought, overgrazed pastures, and heat exhaustion amongst herds. These factors come together to make an already volatile market even more tricky for ranchers during the summer months.
As a result, there is an even greater concentration of hedging activity in contracts maturing during the summer months. Investors can absorb these risk exposures with little to no correlation to other traditional asset classes and access alternative return streams, provided the fundamentals are well understood.