Fund in this article
by Christoph Platt, Euro am Sonntag
E.something that is of the highest quality is often referred to as 1A. The term has its origins in the food industry, where quality grades provide information about the nature of goods. Recently, funds have also been able to claim to be 1A – and not just in a figurative sense, but in real terms.
The € uro-FondsNote, which describes the risk-return profile of a portfolio and uses a scale from 1 to 5, has been around for many years. The eco-rating was added a few weeks ago to determine how ecologically compatible a fund is. The letters A to E provide information on whether a product is exemplary or not. Thanks to this second rating, a finer gradation is now possible when assessing funds. Now there really are 1A funds: portfolios that perform well above average and at the same time shine from an ecological point of view.
The overlap between the € uro-FondsNote 1 and the Eco-Rating A is low. Of the around 6,000 funds available in Germany, just 26 manage to achieve such a top rating. Eleven are equity funds, the remainder are pension funds. The editorial team briefly introduces some of them below (see below). Two tables below list all 1A equity funds and a selection of 1A bond funds.
The € uro-FondsNote analyzes a period of four years and is composed of several components. On the one hand, the performance compared to the direct competition is included in the assessment. On the other hand, the product is compared with a typical benchmark. The higher the excess return, the more points it receives, from which the fund rating is ultimately calculated.
The third factor examined is volatility. Products get a high score here if their share value has fluctuated less than the average within their category.
In addition to the three quantitative criteria, the fund management is scrutinized. It is advantageous here if it has held the reins for a long time and the investment strategy has been applied unchanged for many years.
Performance ratings like the € uro-FondsNote have been around for a long time. Assessments of the quality of a fund in terms of sustainability, on the other hand, are a more recent phenomenon. They go hand in hand with the trend that more and more fund companies are considering sustainability criteria in their investment decisions.
With the Eco-Rating, the Finanz Verlag, in which € uro am Sonntag is published, has also expanded its toolbox in order to be able to better assess portfolios. The eco-rating primarily focuses on the environmental component, supplemented by a few ethical and social criteria. It is based on the actual data of the portfolios.
For this purpose, these are x-rayed as far as possible. Funds that hold many stocks from the fields of renewable energies and environmental orientation or whose companies emit little CO2 achieve high scores. The extensive renunciation of oil and gas companies, nuclear energy and armaments also has a beneficial effect. A no-go are companies that are on the exclusion list of the Norwegian State Fund because they make money with coal. If these appear in the portfolio, the fund is automatically given the weakest eco-rating “E”.
Countries are also assessed so that pension funds that own government bonds can also be given an eco-rating. As with companies, countries with low CO2 emissions, a high proportion of renewable energies and a low proportion of nuclear power receive many points. On the other hand, high military expenditures or the execution of the death penalty result in deductions in the eco-rating. Other factors also play a role.
It is not surprising that among the eleven equity funds with a 1A rating there are several that expressly trade as sustainability or environmental funds. Two ETFs from iShares map sustainability variants of well-known MSCI indices for Europe and the USA, an ETF from UBS follows a comparable price barometer for the Eurozone. Another index fund from iShares explicitly focuses on clean energies, the actively managed Ökoworld Klima fund on companies that counteract climate change with their goods and services.
But there are also some 1A portfolios in the normal categories. In the group of global equity funds, Allianz Thematica manages this feat. The product follows megatrends and invests in five to seven topics. These currently include the energy of the future, clean water / clean soil, health technology and artificial intelligence. The very good eco-rating results on the one hand from the fact that two topics have an ecological relationship. On the other hand, the fund company observes a number of sustainability standards when selecting stocks.
The Velten Strategy Germany does not make any explicit specifications on the subject of sustainability. The relatively small fund selects domestic stocks based on five factors: a stock’s valuation and momentum, and a company’s growth, profitability and stability. With this rule-based approach, which fund manager Robert Velten developed from the historical quarterly reports of around 300 German companies, the product is very successful. The fact that the fund has an ecologically excellent portfolio as a result of this quantitative selection can be seen as the icing on the cake for investors.
From the group of normal European equity funds, there is exactly one product with a 1A rating. UBS Equity European Opportunity Sustainable invests in companies with a strong sustainability profile. They don’t have to be typically green stocks, but the companies in the portfolio should excel in environmental, social and responsible corporate management.
At first glance, the bond funds with fund rating 1 and eco-rating “A” show a surprising degree of uniformity. The 15 portfolios are all ETFs that invest in government bonds from the euro zone. The reason for the frequent occurrence of the eco-rating “A” is that the countries of Europe score particularly well in the eco-assessment – for example in comparison to the USA. Your government bonds therefore give a high score when calculating the rating.
The fact that no actively managed product for European government bonds made it into the illustrious ranks is more due to the fund rating. There are quite a few active portfolios that are eco-rated “A”. But there are only a few Euroland bond funds with fund rating 1. The background to this is that many actively managed portfolios have tended to focus on shorter terms for the securities they hold. However, there were higher price gains among cross-country skiers – and these are mainly found in the specialized ETFs.
Investors should therefore be careful when choosing 1A bond funds. If interest rates rise, portfolios with long-dated bonds will suffer the most. However, this does not change the ecologically exemplary situation for government bonds from the euro zone.
Image sources: Romolo Tavani / Shutterstock, Krisana Antharith / Shutterstock.com, Finanz Verlag