DBS Private Bank relaunches ESG Outperformance Trade following Resounding Success

DBS Private Bank has announced that it has launched a new tranche of its MSCI EM Asia ESG Leaders Outperformance Trade (ESG Outperformance Trade).

Taking a long position on the MSCI EM Asia ESG Leaders Index whilst simultaneously going short the MSCI EM Asia Index from which it is derived, the ESG Outperformance Trade seeks to demonstrate that investing based on ESG principles improves the risk-return characteristics of a portfolio, and ultimately generates superior returns, DBS said in a press release.

The new tranche is structured as a three-year outperformance warrant with a 15% cap on maturity payoff, and is available to accredited investors from DBS Private Bank and DBS Treasures Private Client at a minimum notional investment of USD500,000. The tranche will be open till 10 November 2020, and investors who are keen to participate can place their orders through their relationship manager.

Subhra Chatterjee, Product Management (Equities) Team Lead, DBS Private Bank, said: “This offering represents DBS Private Bank’s confidence in the ESG proposition’s potential to ride out market uncertainties and outperform in the long-term. By designing it as an outperformance trade, it functions as a pure play on ESG – giving clients exposure to the alpha of ESG investing, whilst being immune to the beta of the broad market.”

This is also in line with the bank’s commitment to upping the ante on ESG investing as a purpose-driven bank, and helping clients to do good whilst doing well.

2018 ESG Outperformance Trade saw resounding success

The relaunch follows a highly successful run by the bank’s first ESG Outperformance Trade, reports the Bank, which was the first of its kind in Asia when introduced in August 2018. Despite relatively low awareness around ESG investing then, the ESG Outperformance Trade was well-received by clients and raised SGD 95 million over 7 tranches. In the two years since launch, it has clocked an average performance of 14% and delivered an average return on investment of 135% (as of 13 Oct), with over 75% of invested clients unwinding their trades to book profits.

A look at the 2018 ESG Outperformance Trade’s underlyings surface several other metrics that reinforce how ESG principles contribute to better risk-return profiles and alpha generation. Compared to the MSCI EM Asia Index, the MSCI EM Asia ESG Leaders Index boasts improved return on equity (12%), net profit margin (9%), and average five-year sales growth (15%). The MSCI EM Asia ESG Leaders Index has also performed in line or above the parent index every year since 2013, with 3 – 4% excess return per annum over the long-term.

Clients are increasingly open to ESG investments

Between August to October this year, DBS Private Bank conducted a small group survey to assess clients’ sentiments towards ESG investing. Comprising over 60 respondents from across the region, the survey found that 98% have a positive outlook on ESG investing and believe it to have benefits such as positive social impact, portfolio diversification, financial outperformance and resilience to market shocks.

Whilst only 40% of the respondents own ESG investments at present, survey findings suggest that there is ample room for this figure to grow over time: 77% intend to increase their exposure to ESG investments over the next three to five years, and 70% are willing to switch out their current portfolio holdings for products that boast higher ESG ratings.

Joseph Poon, Group Head, DBS Private Bank, said: “Covid-19 has accentuated many ESG issues, turning them from invisible to visceral, from barely existent to existential. The focus on ESG issues is here to stay, from investments delivering both financial as well as ESG returns, to society’s raised expectations and scrutiny of corporate practices and behaviours. Being trusted advisors to our clients, our focus is on deepening their awareness of these issues, and enabling them to achieve sustainable financial returns whilst helping to shape the broader societal agenda.”

In addition to building out its ESG investment offerings, the bank also integrated MSCI ESG Ratings into its wealth product suite this January so clients can make more informed investment decisions. DBS Private Bank also works closely with DBS Foundation, which is dedicated to championing social entrepreneurship in Asia, to identify opportunities for clients to give back to society by supporting social enterprises in scaling their impact.