Funds Group: Allianz Funds
Management Company: Allianz Global Investors U.S. LLC
Funds Affected: (1) Allianz GI Global Sustainability Fund, (2) AllianzGI Emerging Markets Debt Fund, (3) AllianzGI Global Natural Resources Fund
Principal Sustainable Investment Strategy: (1-2) ESG Integration, (3) Thematic investing and ESG integration
Allianz Funds Summary
(1) The fund seeks to achieve its investment objective by creating a portfolio of global equities with a focus on companies that the portfolio managers believe exhibit strong records with respect to environmental, social, and corporate governance (ESG) factors. The portfolio managers begin with an investment universe comprised of more than 3,000 equity securities and assess individual securities using a disciplined investment process that integrates a focus on the ESG records of the issuers of such securities with proprietary fundamental, company-specific research and quantitative analysis.
The portfolio managers use a proprietary ESG model to evaluate and rate the securities in the investment universe. The portfolio managers believe that there are long-term benefits in an investment philosophy that attaches material weight to certain issues not captured by traditional investment analysis, such as the environment, workplace relations, human rights, community relations, product safety and impact, and corporate governance and business ethics. The portfolio managers also believe that investing in companies with strong records for managing ESG risks can generate long-term competitive financial returns and positive societal impact and that companies that do not exhibit strong records with respect to ESG factors may be at a greater long-term risk of negative economic consequences. With respect to ESG factors, the portfolio managers will aim to invest the majority of the Fund’s portfolio in stocks rated as best-in-class (i.e., top 30%), while avoiding stocks rated worst-in-class (i.e., bottom 30%).
The portfolio managers then analyze specific companies for possible investment through a disciplined, fundamental, bottom up-research process and quantitative analysis. In identifying potential investments, the portfolio managers ordinarily look for companies that exhibit some or all of the following characteristics: a strong record with respect to ESG factors; long-term competitive advantage; a strong balance sheet; high barriers to entry in the company’s industry or area of business; experienced and respected management; and a strong record of capital discipline. The portfolio managers then seek to identify quality companies that exhibit growth characteristics (companies that the portfolio managers believe are expected to grow returns over and above the cost of capital). The portfolio managers construct the portfolio with the expectation that stock-specific risk will drive the fund’s returns over a complete market cycle and may reallocate the portfolio’s holdings in attempting to mitigate other risk factors, such as currency risk, country/regional risk, investment style risk, and sector risk, among others.
(2) An analysis of Environmental, Social and Corporate Governance (“ESG”) factors is also performed, as the portfolio managers believe this enhances the investment process.
(3) The Fund seeks to achieve its investment objective by normally investing at least 80% of its net assets (plus borrowings made for investment purposes) in equity securities of companies that are associated with natural resources, including those companies that are principally or substantially engaged in the research, development, manufacturing, extraction, distribution or sale of materials, energy or goods related to the Energy, Materials, Agriculture or Commodity-Related Industrials sectors. The fund considers (i) the Energy sector to include products such as natural gas, oil, alternative energy and electricity (e.g., wind/solar energy), energy storage and coal; (ii) the Materials sector to include products such as chemicals & fertilizers, construction materials, industrial metal, precious metal, steel, minerals and paper products; (iii) the Agriculture sector to include products such as grain, vegetable oils, livestock and agricultural-type products such as coffee; and (iv) the Commodity-Related Industrials sector to include industrial firms that manufacture tools, equipment and goods used in the development and production of commodities or that maintain infrastructure used in their transportation.
Under normal conditions, the portfolio managers seek to allocate investments across a range of investment opportunities and businesses in the Energy, Materials, Agriculture and Commodity-Related Industrials sectors. The relative weightings of these sectors in the fund’s portfolio are expected to vary from time to time.
The fund’s portfolio manager will evaluate the relative attractiveness of individual commodity cycles, including supply-demand fundamentals, pricing outlook and impact on U.S. and non-U.S. macroeconomic indicators like inflation. In addition, the portfolio manager may consider forecasts of economic growth, inflation and interest rates to help identify industry sectors, regions and individual countries (including emerging market countries) that the portfolio manager believes are likely to offer the best investment opportunities. Companies’ Environmental, Social and Corporate Governance (“ESG”) practices are also considered for purposes of the investment process, based in part on a proprietary ESG scoring model.
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