During an interview with Delano on 4 April 2024, Martin Fenner from the bank and asset manager J. Safra Sarasin (JSS), explained that the firm’s JSS sustainable green planet fund has no official benchmark because “we try to really capture the most relevant themes or sub themes rather than just trying to replicate the MSCI World.”
You compare [your fund] to a benchmark when you have something similar
In an published in February, Delano noticed that many article 9 funds were benchmarked against large and broad indices such as the MSCI World or ACWI, Bloomberg Global, Eurostoxx or the S&P 500, while very few were using more targeted benchmarks such as MSCI World Climate Change or the MSCI ACWI Climate Paris Aligned.
Given that the JSS sustainable green planet fund is built around four buckets--ecosystem protection, resource efficiency, smart mobility and future energies--it is probably fair to assume that the fund would exhibit significant tracking errors against large and broad indices as per our observations in the following table extracted from our :
Laurent Misonne, head of wholesale & institutional sales, Benelux & France at JSS, argued that “you compare [your fund] to a benchmark when you have something similar.” He thinks that it is very often an issue with thematic funds. “Many asset managers have no benchmark for thematic funds.” Besides, Fenner observed that some fund managers use the MSCI World as a “reference benchmark so that they are not held accountable in terms of performance.”
The case for a “reference benchmark”
Marked in Morningstar’s database as a UBS fund, Delano understands that its subsidiary in Luxembourg offers a white label platform to third party clients on which the fund is managed by Active Niche Fund SA, the sponsor of the sub-fund. Despite being referenced as a “primary prospectus benchmark” in Morningstar’s database, Pascal Rochat, CEO at ANF, explained in a written communication to Delano that the MSCI World TR is not the official benchmark of the fund but rather a “reference benchmark” that is used calculate performance fees.
Rochat commented that the performance swings are mainly related to factors that are specific to the solar sector, which has been hit hard since last summer on the back of excess capacity in China.
Delano understands that ANF intends to keep using MSCI World TR as a “reference benchmark” given that it thinks that the fund will generate a higher performance than the MSCI World TR “in the long run.”
Merits in benchmarking your fund against a large, broad and well-known index
As shown above, ODDO BHF (ODDO BHF Artificial Intllgnc CIw-USD) topped our article 9 fund ranking for 2023 based on its the relative performance. It decided to use the MSCI World NR € as a benchmark. Responding to a request for comment, ODDO BHF explained that it has chosen a “generalist benchmark” because the fund “is not a sector fund.”
The asset manager added: “we invest in a ‘thematic’ which can touch all parts of the economy in all sectors. We believe that in the medium-term that AI will be everywhere and it’s the norm in global thematic funds. We believe companies active in any sector that are quicker and more agile in this AI adoption cycle will make a difference vs. their competitors, on both operating, financial, and ultimately stock performance fronts.”
Consequently, it is likely that the ODDO BHF fund will continue to be exposed to large swings against the benchmark. The firm explained the underperformance in 2022 (-1,455 bps) came from the “tech” poor performance. In a timely twist of events, the launch of ChatGPT, at the end of November 2022, acted as a catalyst that contributed to the fund’s stellar performance and outperformance in 2023 (+42.47%, +2,288bps).
Performance review against a peer group: a better alternative?
Despite not having an official benchmark, JSS decided to compare the performance of its JSS sustainable green planet fund against the Morningstar Ecology peer group in its marketing material. Fenner noted that Morningstar looks at the growth/value tilts and the size of the underlying companies among other factors to derive a peer group category.
From inception on 1 January 2021 to 29 February 2024, Fenner stated that the fund ranks in the first quartile (cumulative returns: +27.6% for the fund against +10% for the peer group) when compared to the Morningstar Ecology peer group which includes around 280 funds. No tracking error data nor a yearly performance of the fund against the peer group were communicated in the marketing material.
Finding a relevant benchmark: caught between a rock and the hard place
The manager of other low-performing funds in Delano’s tables, BNP Paribas, said in a written statement that the “MSCI ACWI is used for performance calculations only” for both funds (as displayed in the table above) as “investors are pushing for a ‘common denominator’ when comparing performance between funds.”
On the BNP Paribas energy transition fund, it also warned that “performance may deviate from that of the benchmark” and that the portfolio “is not managed against a tight tracking error vs. MSCI ACWI” which is not surprising given that the index contains only ~4% of “energy transition solutions companies” according to BNP Paribas.
In addition, BNP Paribas has “decided to add [in its marketing material]” the “so-called thematic reference indicator” which is using a composite of the WilderHill Clean Energy index. BNP Paribas explained that it is “a very diversified energy transition composite built from 180 companies with little index concentration.”
BNP Paribas ecosystem restoration fund: no such benchmark out there
Launched in 2021, the fund started by “investing in solutions aiming at restoring ecosystems in support of the UN initiative of Ecosystem Restoration and broadened out the remit of the fund to include circular economy and eco-design. BNP has not yet found “any credible indices” which complicates “the ability to compare performance against the underlying theme.” It hopes to find a “thematic comparator… as soon as practically possible.”
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .