- In addition to basic indicators, sensitivity and risk, sustainability and alternative data form the basis of our investment process.
- When analyzing sustainability data, it is important to reconcile it with economic indicators.
- Alternative data allows a detailed and, above all, multi-layered view of the topics that influence the business model.
The systematic investment process covers companies comprehensively
In recent years and in the coming years, the amount of data has been increasing exponentially. In addition to classic fundamental and market data, sustainability and alternative data are becoming an increasing focus. Their integration into the analysis process requires a systematic and quantitative approach. This does not allow us to lose sight of the essentials in a complex world.
In our analysis framework, more than 5,000 global companies are systematically analyzed across all dimensions, each with around 100 data points. They can be classified into the following categories:
- Company activities and business model,
For example B. Sector, country and thematic profiles
- The basics
eg b. profitability and debt
- sustainability and corporate governance,
eg ESG scores, CO2– Intensity and sustainable sales
- group and capital structure,
For example, b- registering economic relations between subsidiaries and parent companies
- sensitivities and risk indicators,
eg b. Beta and privacy fluctuations
- negotiability and transaction costs,
For example b- daily liquidity and against explicit and implicit costs
Having taken a detailed look at the basic indicators as well as the sensitivity and risk indicators in the last article, we will focus first on the area of sustainability and corporate governance.
An economy consistent with sustainability
The focus of the sustainability analysis is on the following three criteria. For a detailed definition and consideration, we refer to our previous articles:
Illustration 1 And the Figure 2 Representing the MSCI ESG and CO rating distribution2– Intensity in the US and global stock market: Compared to the US and global stock market, Apple has a slightly below average ESG rating, which is driven particularly by the E and G components. Ultimately, since Apple is focused on developing in-house and outsourcing software solutions Outsourcing device manufacturing, ESG supplier practices negatively affect Apple’s rating.
In the case of CO2Severity also reflects negative impact. If you look at Illustration 1Obviously, Apple’s performance is lower than that of the US and global stock market. However, this consideration only includes Scope 1 + 2. On the other hand, if the entire value chain (including suppliers) is taken into account (Scope 3), CO2 will increase2– Density has increased significantly and is slightly below average.
Since Apple, as a technology group, has a rating rate of 0 percent, this criterion will not be scrutinized further at this point. Given that the EU classification focuses on sectors that make a significant positive contribution to mitigating climate change, this result is not surprising.
Objectively capture business models using surrogate data
In order to systematically record a company’s activities and business models beyond traditional sector and country allocations, surrogate data is incorporated into the company’s analysis. As part of this, the following five data sources are recorded and assigned to more than 200 subjects:
- Patents: quantity and quality
- Deal: Thematic holdings
- Careers: Investing in human capital
- Deposit: What topics does the company talk about?
- News: What topics are the third parties talking about in relation to the company
With postings and news in particular, it is also important to consider sentiment, i.e. whether the topic is mentioned in a positive or negative context. In the next step, all data should be placed in relation to the size of the company in order to make it comparable. For example, salaries for jobs advertised in a topic are compared to the company’s personnel costs to see how much is invested in that topic.
Table 1 It shows the characteristics of Apple against the different themes represented by the alternative data. Characteristics should always be considered in relation to the global stock market; That is, a positive expression means more exposure to the subject than to the global stock market and vice versa.
Assenagon stock frame
Alternative data allows a detailed and, above all, multi-layered view of the topics that influence the business model. Table 1 It gives an overview of the four most positive and negative characteristics of Apple compared to the global stock market. It is not surprising that Apple’s business model is dominated by the mobile theme, but Apple Pay now also plays an important role, as evidenced by the fintech properties. However, a closer look at the most negative characteristics shows that the market dominance of a business model is not entirely without regulatory risks. In addition, MSCI ESG’s above-average rating is also reflected in the objective evaluation of alternative data – regardless of the choice of ESG research service provider.
to the investor
In addition to a detailed look at the basic indicators as well as the sensitivity and risk indicators (see Stock Insights #21), sustainability and surrogate data in the sense of a comprehensive analysis should not be ignored. On the other hand, the latter makes it possible to identify purely qualitative aspects, which leads to a multi-layered and in particular objective view of the company’s business model. Until now, this has been reserved for purely qualitative and often subjective analyses.
Note: Read in the following issue the factors that managed to prove themselves in the demanding stock market in 2022
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