(Pictured: Kathryn McDonald)

AXA Investment Managers has chosen Australia to launch its first integrated ESG smart beta fund, which has been seeded by dealer group Financial Index Wealth Accountants (FIWA) with $55 million, and is available on the Asgard platform.

The fund, which is powered by US subsidiary AXA Rosenberg, will have about 400 stocks and offers daily liquidity. It follows increasing demand for AXA IM’s ESG-related strategies, mainly from institutional investors. It extends the reach into emerging markets, via the benchmark ACWI (All Country World Index).

Kathryn McDonald, director of investment strategy at AXA Rosenberg, a quant manager, who was in Australia last week for the ASI conference, said the process weighted the portfolio for sustainable earnings, including ways to deal with tail risk.

“It’s definitely not cap-weighted and it’s not an index from a mechanical point of view,” she said. When the manager digs down into the performance changes which may come from the ESG component for the different cross-sections of the portfolio, it sees some slightly positive in value and some slightly negative. But the net result is never very big.

“When you look at it on a sector-neutral basis you do see a positive relationship with value [style] and ESG,” she said.

FIWA, which recently acquired dealer group Centric Wealth, is advised by independent asset consultants Atchison Consultants. Kev Toohey, Atchison’s general manager, said the AXA IM smart beta global equity fund, managed against ACWI, was now a core element of FIWA’s global equity strategies.

“We saw real value in moving away from a standard passive mandate towards a more effective means of harvesting the global equity beta. We were also attracted by the diversification play the fund’s emerging market exposure offers investors,” he said. McDonald said: “Overlaying smart beta with ESG is quite a novel concept but it’s one we feel is a very positive step. Our extensive research shows ESG smart beta can offer investors a lower risk and higher return than index investing, along with a defensive strategy with improved diversification and ESG performance – an attractive concept for long-term investors.”