HAND IN HAND For the managers of the Nordea 1 – Global Climate and Social Impact Fund, the “E” and “S” megatrends are closely interlinked / 08

TEAMWORK NAM’s experienced Multi Assets Team has successfully navigated any market turbulence by relying on alternative liquid vehicles / 12

PARTNERSHIP In light of the upcoming changes to MiFID II, NAM is committed to being a strong partner to distributors and advisers / 16

Advertising material for professional investors only , investing for their own account – according to MiFID definition ISSUE 02.2021 nordic f iends

Build your ESG portfolio

The changes to MiFID II will present a whole new set of challenges for financial advisers and distributors. In this situation, it’s good to have an experienced partner at your side who can support you in building your sustainable offering / 04


Selected Nordea funds at a glance Find out more about Nordea´s full product range at

ESG solution

NORDEA 1, SICAV Equity Europe European Stars Equity Fund








Nordic Equity Fund





Nordic Stars Equity Fund





Emerging markets Asian Stars Equity Fund

LU2152927971 LU0975278572 LU0602539602 LU0309468808



28.04.2020 05.12.2013 15.04.2011

Chinese Equity Fund

Emerging Stars Equity Fund Latin American Equity Fund Global Global Stable Equity Fund







Global Stable Equity Fund – Euro Hedged

LU0278529986 LU0985320562



05.03.2007 17.05.2016

Global Stars Equity Fund

North America North American Stars Equity Fund Bond Core Norwegian Short-Term Bond Fund









Swedish Short-Term Bond Fund





Covered bonds Danish Covered Bond Fund





European Covered Bond Fund





European Covered Bond Opportunities Fund





Low Duration European Covered Bond Fund





Credit Emerging Market Bond Fund Emerging Stars Bond Fund

LU0772926670 LU1915689316



30.05.2012 17.01.2019

European Corporate Stars Bond Fund



European Cross Credit Fund



European Financial Debt Fund





European High Yield Bond Fund





European High Yield Stars Bond Fund



Global Green Bond Fund





North American High Yield Stars Bond Fund

LU1937720214 LU1221952010



07.02.2019 05.05.2015

Renminbi Bond Fund


US Corporate Bond Fund





US Corporate Stars Bond Fund





US High Yield Bond Fund





Unconstrained solutions Multi-asset solutions Balanced Income Fund





Conservative Fixed Income Fund





Flexible Fixed Income Fund





Stable Return Fund





Liquid alternatives Alpha 7 MA Fund






Alpha 10 MA Fund






Alpha 15 MA Fund






Fixed income US Total Return Bond Fund





Thematic Global Climate and Environment Fund 1 Global Climate and Social Impact Fund

LU0348926287 LU2355687059 LU1940854943 LU1939214778 LU1947902109 LU2257592514



13.03.2008 06.07.2021 19.02.2019 21.02.2019 05.03.2019 03.12.2020



Global Disruption Fund

Global Gender Diversity Fund

Global Listed Infrastructure Fund Global Social Empowerment Fund


Please note that not all sub-funds and share classes might be available in your country of jurisdiction. 1 Soft closed as of 26.02.2021.

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In this edition

Dear reader,

The global economic and market environment remains incredibly challenging as we head into 2022. While Covid-19 vaccines have given us a pathway to an eventual return to normal, new variants of the virus continue to cause concern. In addi- tion to the ongoing issues related to the coronavirus, the health of the economic recovery also raises ques-

tions – particularly with elevated inflation levels across many parts of the world. Whether inflation is simply transitory or something more persistent remains a key theme our investors will be evaluating as we progress through 2022. While there are many unknowns when it comes to the invest- ment backdrop, there is one certainty distributors and financial advisers will be confronted with next year: the obligation to offer MiFID-eligible ESG portfolios to clients with sustainability preferences. From August 2022, sustainability preferences must be actively asked for and incorporated into the overall client suitability assessment. At NAM, we are committed to helping you navigate the complex regulatory terrain, as well as offering you all the building blocks you need to construct sustainable offerings. Read more about this in our cover story. Speaking of sustainability, earlier this year, we unveiled our newest Article 9 investment strategy, the Nordea 1 – Global Climate and Social Impact Fund . Managers Thomas Sørensen and Henning Padberg will be well known to you, with the duo running our renowned Global Climate and Environment Strate- gy since its launch back in 2008. The new fund not only looks to allocate to environmental solutions, but the team also seeks to capitalise on the compelling opportunity in the social, or ‘S’, megatrend within ESG. We also hear from Asbjørn Trolle Hansen, Head of NAM’s Multi Assets Team. Trolle Hansen explains why the old-fash- ioned way of constructing a multi-asset portfolio may have reached its limits, particularly as the diversification potential of government bonds has significantly decreased in recent years. From all of us at NAM, we want to thank you for your ongoing support and trust over the past year. Have a safe and pleasant festive period, and we look forward to speaking to you again early in the New Year.

Cover story


Build your ESG portfolio NAM can provide financial advisers with all the building blocks for their sustainable portfolios. Fund in focus 8 A powerful combination NAM’s Global Climate and Social Impact Strategy captures both the “E” and “S” megatrends. Market view 12 Right on course Taking an alternative approach, NAM’s Alpha MA strategies have stayed on course in any weather. Macro opinion 15 The last leg of a tremendous rally The current equity rally is drawing to its close. What does that mean for investors? Inside Nordea 16 Your ESG partner to reach net zero With the MiFID II amendment, the next major regu- latory change is coming soon. NAM offers support. ESG decrypted 19 Changes to MiFID: are you ready? PAI can be a valuable tool for financial advisers to meet the upcoming regulatory challenge. How so? Lounge 20

Yours faithfully,

Sustainability matters Keeping you informed Nordic point of view: Suspense from the far north

Christophe Girondel Global Head of Institutional and Wholesale Distribution

ISSUE 02.2021


In only a few months’ time, the changes to MiFID II will force distributors and financial advisers to rethink their sustainable product offering. NAM is committed to providing them with all the building blocks they need. Build your ESG portfolio

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„ The new regulatory changes will add to the complexity and challenges distributors and advisers are facing. Christophe Girondel Global Head of Institutional and Wholesale Distribution at NAM

As Benjamin Franklin, one of the founding fathers of the US, once famously expressed: ‘nothing is certain except death and taxes’. However, in the European investment industry, there has been another certainty in life over recent years: regulatory change. Interest in investments that consider environmental, social and govern- ance (ESG) factors has been rapidly rising in recent years. At the same time, EU regulators have been rolling out a raft of new initiatives to improve disclosure levels and overall investor understand- ing of sustainable investments with the aim of directing investments towards a more sustainable future. Earlier this year, regulators implemented the Sustainable Finance Disclosure Regulation (SFDR), requiring financial market participants and advisers to disclose relevant information related to the sustainability of their products and processes. One of the major aspects of SFDR is the classifi- cation of investment strategies into three groups: Article 6, 8 and 9 products. Strategies promoting environmental or social characteristics are labelled as Article 8, while those with sustainable invest- ments as the investment objective are Article 9. New regulatory challenges While SFDR was a major step forward in terms of labelling and disclosures in relation to investment vehicles, it was merely the tip of the regulatory iceberg. The next major stop on the regulatory journey for asset managers, distributors and advis- ers is the amendment of the Markets in Financial Instruments Directive, or MiFID II for short, which comes into effect on 2 August 2022. Among a host of MiFID II requirements is one major change: going forward, distributors and financial advisers need to incorporate sustainability preferences in the overall client suitability assess- ment. “While determining client sustainability preferences is something some advisers and dis- tributors are currently choosing to do, it will soon become something everyone must do,” Christophe

Girondel, Global Head of Institutional and Whole- sale Distribution at Nordea Asset Management (NAM), explains. “And even though it may seem like August is still quite a way in the distance, the clock has started ticking and preparation must begin right away.” Increasing complexity Should the end investor indicate sustainability preferences, the identification of a suitable product will rest with the distributor or adviser, not the asset manager. However, asset managers will need to provide all the product suitability information re- quired by the distributor and adviser in the assess- ment process. Even though some advisers may still be grappling with the SFDR fund classifications, the MiFID II regime goes above and beyond the SFDR product categorisation. “The new MiFID II requirements will add to the complexity and chal- lenges that distributors and financial advisers are facing. For example, a fund classified under SFDR as Article 8 today may not be suitable under MiFID II,” Girondel explains. “Distributors and advisers have a lot of choices ahead. Firstly, there is a need to choose whether you will operate a sustainabil- ity product offering alongside a more traditional

At a glance ` On 2 August 2022, changes to MiFID II will come into effect that make it mandatory for distributors and financial advisers to actively inquire after their clients’ sustaina- bility preferences and incorporate them in the overall suitability assessment ` NAM strives to be a strategic partner to distributors and advisers, supporting them every step of the way and helping them understand what is required ` In addition, NAM has invested to be able to offer all the building blocks needed for distributors and advisers to construct their sustainable offerings

ISSUE 02.2021


range, or simply transition to a sustainable suite of strategies,” Girondel points out. “You will also need to determine the bar you set in terms of the sustainability products you will be selecting. This is a careful consideration, particularly as the current focus on greenwashing is only going to intensify in the months and years ahead.” Building blocks for an ESG portfolio NAM has been at the forefront of the responsi- ble and sustainable investment space for more

than three decades, ever since the launch of its first ESG sector-screened fund. Girondel says the group has worked tirelessly to ensure it remains ahead of the curve when it comes to regulatory change, particularly the fast-moving develop- ments in the sustainability space. “We have also invested into our suite of specialist solutions to ensure we have all the building blocks needed for distributors and advisers to construct their sustainable offerings,” says Girondel. These building blocks include NAM’s range of ESG STARS funds – which cover a variety of equity regions, and a number of segments of the fixed income market. Each ESG STARS strategy seeks to unearth the sustainable leaders of tomorrow and has three primary objectives: beat the benchmark, invest in companies or countries displaying positive ESG standards and create a lasting impact.1

Let’s build ESG portfolios Nordea Asset Management (NAM) recently launched a new microsite where financial advisors and distribution partners can find all the information they need about how NAM can help them meet the coming sustainability requirements. Find out what building blocks NAM can offer you to build your ESG offering: from NAM’s solid ESG framework and decades of experience in sustainable investing to its wide range of ESG strategies including the ESG STARS funds, which cover various asset classes and geographical regions. For more information:

1 There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money.

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Teamwork: together with an experienced partner such as NAM most challenges can be mastered successfully. „ We have invested into our suite of specialist solutions to ensure we have all the building blocks needed for distributors

and advisers to construct their sustainable offerings. Christophe Girondel, Global Head of Institutional and Wholesale Distribution at NAM

once the new MiFID eligibility requirements are in place. While Girondel understands distributors and advisers will undoubtedly face numerous challenges over the coming months, he says NAM is on hand to provide as- sistance. “We want to be a strategic partner for our clients over this journey and are commit- ted to helping them every step along the way,” Girondel explains. “We have undertaken signifi- cant work on our own MiFID II implementation within our asset management but also within our bank, so we can assist with your understand- ing of what is required. We are also on hand to work with advisory groups of all sizes in edu- cating workforces of the changes and the new requirements ahead of the deadline.” 

ESG analysts from NAM’s renowned Respon- sible Investments Team are also embedded in the portfolio management team on each ESG STARS fund, providing invaluable insights into possible risks and opportunities. “As a con- sequence, with our STARS funds, ESG is not an overlay but it is embedded into the investment process,” Girondel states. “For example, ESG considerations impact our company valuation model.” A dedicated partner NAM will ensure all its current Article 8 and 9 products, as well as any other ESG and sustainability-aligned launch, will qualify as suitable for clients with sustainable preferences

ISSUE 02.2021


A powerful combination

The recently launched Nordea 1 – Global Climate and Social Impact Fund seizes the opportunities of the powerful “E” and “S” megatrends in one combined strategy.

Nordea Asset Management’s (NAM) expertise in investing in climate solutions hardly needs an introduction. NAM was one of the pioneers of environmentally focused investing, launching its renowned Nordea 1 – Global Climate and Environment Fund back in 2008. This strategy, managed by Thomas Sørensen and Henning Padberg since its inception, has been one of Eu- rope’s most popular investment vehicles in recent years. In late 2020, NAM additionally expanded its suite of sustainable solutions to capitalise on the increasingly compelling opportunity aligned to the social, or ‘S’, element of ESG, through the Nordea 1 – Global Social Empowerment Fund . Drawing on this longstanding heritage in sus- tainability, NAM recently unveiled a strategy to harness the powerful momentum of both ‘E’ and ‘S’ megatrends, the Nordea 1 – Global Climate and Social Impact Fund . The strategy is spearheaded by the same successful portfolio manager team of Sørensen and Padberg. Although the new strategy was launched only in July, the two portfolio manag- ers had already been running a mandate following the same investment philosophy and process since March 2020. The duo is supported by other mem- bers of the Fundamental Equities Team, as well as ESG analysts from NAM’s highly regarded Respon- sible Investments Team. As you would expect from a strategy managed by NAM’s Fundamental Equi-

ties Team, robust ESG and impact analysis are fully integrated into the investment process, while the team actively engages with the companies it invests in to help foster real change. The link between the ‘E’ and ‘S’ For the two portfolio managers, combining the ‘E’ and ‘S’ megatrends in one product makes per- fect sense. “Environmental and social issues are closely linked. One influences the other. Man-made climate change, for example, affects our societies through changes in water, air, food, the ecosys- tem, our livelihoods and infrastructure,” Sørensen explains. “Another example: 80% of global waste-

At a glance ` The Nordea 1 – Global Climate and Social Impact Fund is run by Thomas Sørensen and Henning Padberg, the renowned portfolio managers of NAM’s Global Climate and Environment Strategy ` Sørensen and Padberg aim to invest in companies at the forefront of what they call the ‘inclusive green economy’, as the interconnection between social and climate issues accelerates ` ESG and impact analysis are fully integrated into the investment process, while the portfolio managers and NAM’s Responsible Investments Team actively engage with companies to help foster real change

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A clear reflection: changes in the environment influence human living conditions, while our way of life has a huge impact on the environment.

„ Environmental and social issues are closely linked. One influences the other. Thomas Sørensen , portfolio manager at Nordea Asset Management water is released without treatment back into the environment, while two billion people live without any readily available safe water supplies at home.” and enhance social equity and fair burden- sharing. “The concept of the inclusive green economy forms a pathway towards achieving

the UN’s 2030 Sustainable Development Goals (SDGs),” Sørensen says. “In addition, this is truly an immense investment opportunity, as achieving the SDGs could unlock economic prospects worth at least USD 12trn a year by 2030.”

As the interconnection between social and climate issues continues to gain traction, Sørensen and Padberg are looking to invest in companies at the forefront of building an ‘inclusive green economy’. According to Sørensen and Padberg, investing in an inclusive green economy will help ensure ecosystem resiliency, improve resource efficiency,

Padberg says the philosophy behind the Nordea 1 – Global Climate and Social Impact Fund rests on

ISSUE 02.2021


world approximately 2.8% of gross domestic prod- uct per year, which equates to about USD 2trn.

four key pillars: challenges, solutions, outcomes and impact. “Firstly, we aim to identify specific ESG challenges and group these into a number of thematic areas,” he explains. “Next, we select companies with impactful solutions to counter the challenges we have pinpointed. We then look to measure the tangible effects of the solution and assess how it affects its users and the broader environment. Finally, we want to achieve impact in two ways: through the positive change created by the solutions we invest in, as well as by improving the ESG parameters of the companies in which we invest, resulting from our engagement efforts.” Four primary themes The Nordea 1 – Global Climate and Social Impact Fund’s investment universe is aligned to four primary themes: health and wellbeing, inclusion and opportunity, sustainable living and the low carbon economy. Each main theme also contains a number of underlying sub-strategies. Within the health and wellbeing theme, Sørensen and Padberg seek companies enabling access to high-quality health services, medicines and technologies, and nutritious foods. Solutions in this space are pivotal, as chronic non-communica- ble diseases are the leading cause of death and disability worldwide. In addition, obesity costs the

The inclusion and opportunity theme aims to ad- dress a number of inequalities across society. For example, 1.6 billion people are still housed inade- quately across the world, while 30% of adults still do not have bank accounts. Here, the team targets companies enabling equal access to education and vocational training, lower-cost housing pro- jects and services, providers of financial services and technologies, and management solutions for small and medium-sized businesses. The challenges of the sustainable living theme are also stark, highlighted by the fact that 2.1 billion people across the world do not have access to safe drinking water. In addition, 45% of global greenhouse gas emissions can be attributed to the production of goods. To improve the chances of a sustainable future, Sørensen and Padberg look for companies producing or delivering products and services in the areas of basic sanitation, safe and fresh water, waste management, and food manu- facturing and distribution. Lastly, the team seeks innovators assisting the transition to a low carbon economy. It invests in companies contributing to low carbon and

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„ The concept of the inclusive green economy forms a pathway towards achieving the UN’s Sustainable Development Goals.

Thomas Sørensen , portfolio manager at Nordea Asset Management

The need for clean drinking water is one of many issues where the social and environmental spheres are inextricably linked.

“Thankfully, society today is fully aware of the pressing need to take action. Not only have we witnessed major momentum at the public and government levels, but the corporate sector is also increasingly understanding its critical role in achieving the UN’s sustainability goals, which has sparked widespread innovation in environmental and social solutions.” His colleague Sørensen agrees. He concludes: “Despite all the challenges society continues to face, we believe we are on the cusp of a green rebirth. We are convinced climate and social solutions will play a key role in generating and sustaining global prosperity – particularly as we look to rebound from the global pandemic.” 

resource-efficient building, transportation and manufacturing processes, as well as groups supporting the development or delivery of renewable energy and alternative fuels. There is significant scope for improvement in these areas, considering 75% of the building stock in the EU-28 is classified as energy inefficient and 30% of NOx emissions in the EU-28 is related to road transportation. At company level, a good example of a business aligned to the inclusive green economy is US group Owens Corning. With 40% of total energy consumption in the US related to buildings, and 90% of American homes not or poorly insulat- ed, the insulating products from Owens Corning enable residential and commercial customers to conserve energy and improve acoustical perfor- mance. Properly installed insulation could poten- tially lead to a 45% saving in energy costs, while the 1 ton of CO2 generated in the manufacturing of stone wool insulation is estimated to save 200 tons of CO2 over a 50-year period. Towards an inclusive green society “When we think back to when we launched our first climate strategy 13 years ago, there was widespread pessimism in some parts of society about climate change,” Padberg explains.

Nordea 1 – Global Climate and Social Impact Fund

Thomas Sørensen and Henning Padberg



Base currency

LU2355687059 (BP-USD) LU2355687216 (BI-USD)


06.07.2021 (BP-USD, BI-USD)

Launch date

ISSUE 02.2021


As traditional diversification instruments are working less and less, Asbjørn Trolle Hansen and his team rely on risk premia to counterbalance risk assets. This has enabled them to successfully navigate even the most difficult market conditions. Right on course

After suffering one of the most powerful shocks in recent market history, risk assets have re- bounded strongly since the sharp Covid- inspired sell-off in early 2020 . In fact, fuelled by unprecedented monetary and fiscal intervention, many markets have reached all-time highs over the course of 2021. While previously unloved value- style equities surged in the months after news of a successful vaccine, the rise has yet to prove sus- tainable as growth-style stocks have rebounded. As for government bonds, assets traditionally used for defensive purposes, yields remain anchored at historically low levels. New answers to an old dilemma Even though the world today is very different from how it was before the pandemic, the dilemma for investors appears eerily similar: equities remain at historically stretched valuations and government

bonds appear to offer little cushion for comfort. As a result, Asbjørn Trolle Hansen, Head of Nordea Asset Management’s (NAM) Multi Assets Team, believes the old-fashioned way of constructing a multi-asset portfolio may have reached its limits. “We believe traditional diversification is no longer able to protect investors to the extent they have been used to, and it is getting more difficult to find diversification in this increasingly complex market environment,” Trolle Hansen says. Fortunately, NAM’s Multi Assets Team – which was established in 2004 and today manages more than EUR 100bn – looks beyond traditional asset classes and seeks to exploit opportunities available in alternative risk premia. NAM’s Alpha MA range of liquid alternative vehicles are pure examples of this differentiated approach to multi-asset invest- ing, which has proven its resilience in times of

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„ There is a strong need for investors to have other, alternative tools available to be able to diversify equity beta risk. Asbjørn Trolle Hansen, Head of NAM’s Multi Assets Team

Protection in any market conditions Unlike other approaches to running multi-asset portfolios, which require a manager to continually make the right macro call, NAM’s Multi Assets Team seeks to identify a select number of truly uncorre- lated positions that are able to deliver for investors in all market conditions.1 “We consider a broad and diversified set of different risk premia (typically around 20-30), spread across strategy types and asset classes,” Trolle Hansen says. “One example is the use of defensive currencies, selected on quality characteristics and attractive valuation. During recent sell-offs, defensive currencies have provided superior downside protection to many traditional bond sources.” Successfully navigating the severe volatility on display at the height of the Covid-19 shock was no coincidence. Rather, NAM’s Multi Assets Team has repeatedly proven its ability to deliver in the most challenging environments.2 “We have been through 1 There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money. 2 The performance represented is historical; past performance is not a reliable indicator of future results and investors may not recover the full amount invested. The value of your investment can go up and down, and you could lose some or all of your invested money.

During the Covid-related market turmoil, NAM’s range of liquid alternative vehicles again demonstrated their resilience.

market turmoil such as during the Covid crunch in the first quarter of 2020. NAM has three strategies in its Alpha suite, which are managed in the same way, but cater for differing risk/return profile preferences: the Nordea 1 – Alpha 7 MA Fund , the Nordea 1 – Alpha 10 MA Fund and the Nordea 1 – Alpha 15 MA Fund . Alternative instruments for diversification Trolle Hansen is particularly concerned about the risk-reduction role of fixed income within a multi-asset portfolio. “Fixed income’s diversifica- tion potential is significantly decreased at current interest rate levels. Therefore, there is a strong need for investors to have other, alternative tools available to be able to diversify equity beta risk within portfolios,” Trolle Hansen explains. “This has become more pressing than ever, particularly as the traditional diversification potential that inves- tors have been used to in the past has shrunk even more significantly over the past two years.” The sharp equity market sell-offs investors experienced in March and September 2020 highlighted the dilemma investors face, namely: duration versus equity beta. “It is imperative to have proprietary alternative defensive strategies at your disposal that can help investors fight this dilemma and achieve portfolio diversification,” Trolle Hansen points out.

At a glance ` The old-fashioned method of constructing a multi-asset portfolio may have reached its limits, due to the inability of fixed income to adequately diversify equity risk in a low-yield environment ` NAM’s Multi Assets Team looks beyond traditional asset classes and seeks to exploit the opportunities available in alternative risk premia ` Investors must prepare for a more complex market environment in the years ahead, as uncertainties continue to mount

ISSUE 02.2021


Prepared to sail against the wind: NAM’s experts anticipate a more complex market environment with potentially strong bouts of volatility in the coming years.

may not yet be fully reflected in bond prices. “Equi- ties typically do well in an inflationary environment. Nominal earnings growth tends to rise with higher inflation, as companies pass on at least some of the rising costs. Looking specifically at the S&P 500, companies are showing stable-to-strong gross margins,” he says. According to the expert, inflation is not necessarily bad for the earnings growth of both growth and value stocks, but value stocks tend to perform better first. “We believe this is particularly true for our Stable Equities, which do exhibit an exposure to multiple factors such as value, low volatility and quality. These stocks are therefore particularly well positioned because of their good pricing power which allows better management of margin pres- sure while seeing inflation feeding top-line growth,” states Trolle Hansen. While there are never any certainties in life, as the world has been harshly reminded over the past two years, Trolle Hansen is convinced that this current decade will not share the same characteristics as its predecessor. “The expected returns for traditional asset classes over the remainder of the 2020s are significantly lower than what most investors have become accustomed to. With macro data deteriorat- ing and uncertainties increasing, we do not expect a repeat of the strong growth-driven benign envi- ronment of recent years,” Trolle Hansen concludes. “Investors would do well to prepare in case the market were to become more complex, with more volatility peaks compared to what they might have been used to in recent years. As diversification des- tinations continue to diminish, liquid alternatives are best placed to meet the challenges of today and tomorrow.” 

a number of bouts of severe market turbulence, such as during the global financial crisis and the European sovereign debt crisis, as well as the periods of heightened volatility stemming from unexpected political events,” Trolle Hansen explains. “And on each occasion, our proprietary defensive return drivers passed the test.” Inflation on the rise The next test may already have arrived, as inflation continues to move higher in a number of key global markets. Price pressures are particularly evident in the US, where year-on-year the Consumer Price Index (CPI) is running at about 5%. Trolle Hansen believes it is essential to take inflation risk into account in asset allocation. Here, he finds more comfort in equities, as the risks of rising inflation

Nordea 1 – Alpha 7 MA Fund Manager Multi Assets Team Base Currency EUR ISIN Nordea 1 – Alpha 10 MA Fund Manager Multi Assets Team Base Currency EUR ISIN Nordea 1 – Alpha 15 MA Fund Manager Multi Assets Team Base Currency EUR ISIN

Launch Date 23.05.2018 (BP-EUR, BI-EUR)

LU1807426207 (BP-EUR) LU1807426629 (BI-EUR)

Launch Date 30.09.2009 (BP-EUR, BI-EUR)

LU0445386369 (BP-EUR) LU0445386955 (BI-EUR)

Launch Date 11.08.2011 (BP-EUR) 15.06.2011 (BI-EUR)

LU0607983896 (BP-EUR) LU0607983383 (BI-EUR)

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Sébastien Galy , Senior Macro Strategist at Nordea Asset Management:

The last leg of a tremendous rally Timing the end of an equity rally is a difficult exercise. While we expect the current rally to extend well into next year, now is the time to start preparing for its temporary end.

“Diversification is the art of avoiding large losses by avoiding large gains,” Stefan Gasic, Chief Private Banker at Nordea, jests. Yet, there is some truth to his comment. Quantitative easing has led to a “buy everything” mentality that has begun favouring long duration assets such as growth companies. The latest wave is the emergence of crypto currencies owing to the fear that governments will simply inflate away large debt loads as happened in the 1980s. Understanding the life cycle of a narrative is crucial – it has a beginning, a middle and an end. While growth style investments will eventually head towards a temporary underperformance, we believe the trend towards environmental, social and governance (ESG) investing is most likely at its beginning. Financial markets typically overshoot; central banks prepare and clean up. We assume that this time round, given the extreme degree of liquidity pushing investors into riskier assets and encouraging higher leverage, equity markets should overshoot more than most expect. As some investment styles de-anchor ever more from reality, the current rally is likely to reach its inflection point sometime in the second half of next year as expectations of a global econo- mic slowdown in 2023/2024 intensify. What is the solution? In a world in which diversification is harder to achieve, there are still ways investors can prepare for the next phase. The first is to feel confident about what you hold, e.g. ESG positions that make economic sense. The second is adding flexible solutions that can rapidly adapt to changing market conditions giving your portfolio more immunity. Finally, consider covered bonds, which are among the ultra-safe non-govern- ment assets. 

Close to the top: every cycle reaches its peak at some point. For the current equity rally, this could be in the second half of next year. Investors should prepare for the inevitable downhill ride.

World trade is symptomatic of a strong cyclical rebound slowing down Development of the volume of world trade in %

25 20 15 10 5 0 -5

World, Foreign Trade, CPB World Trade Monitor, Total, Volume, SA, Index -10 -15 -20 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

Source: Nordea Investment Funds S.A. and Macrobond Date: 31.10.2021

ISSUE 01.2019 2. 21


Your ESG partner to reach net zero Ten years after the launch of the first ESG STARS fund, Christophe Girondel, Global Head of Institutional and Wholesale Distribution at Nordea Asset Management (NAM), discusses the role of ESG solutions – also against the backdrop of accelerating regulatory change.

Earlier this year, NAM’s first ESG STARS strategy, the Nordea 1 – Emerging Stars Equity Fund, celebrated its 10-year anniversary. What was the initial idea behind the launch of the strategy? Put simply, our belief at the time was that integrat- ing environmental, social and governance (ESG) considerations would give us an edge in identify-

ing the corporate stars of tomorrow. Fast-forward a decade, and despite the inevitable movement in markets and personnel, our concept remains un- changed. Today, we have 17 ESG STARS strategies, both equity and fixed income, and our belief in the power of ESG integration is stronger than ever.

What is the edge of NAM’s ESG STARS range when it comes to ESG?

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„ Today, we have 17 ESG STARS strategies, and our belief in the power of ESG integration is stronger than ever.

In addition to utilising our own proprietary models and ESG scoring, a primary distinctive feature of the design of our ESG STARS strategies is the element of true ESG integration. ESG is not an overlay; it is a portfolio management decision. This is also reflected in the team setup. We have made a point of ensuring that our ESG analysts work hand in hand with the portfolio managers as part of one integrated team – something we believe is still quite unique. Engagement is another key part of the ESG STARS concept. We foster change with our investments by engaging with the companies or sovereign entities we invest in around specific ESG topics.

developed a compelling concept to also address the key issue of societal inequality, with our Social Empowerment solution. Now, we are on the cusp of further change: the upcoming MiFID II requirements will integrate sustainability into the suitability process for end clients. As a consequence, we expect ESG to go beyond thematic and become truly main- stream. We believe our ESG STARS range will play a central role here, too.

In what sense?

What has been the investor reception to NAM’s broader ESG range?

Over many years, we have been able to forge strong partnerships with our clients across Europe. Today, we manage in excess of EUR 17.5bn (as of 30.09.2021) across our ESG STARS range, in both equity and bond strategies. Our clients understand our history and credentials, and our longstanding commitment to ESG. We are now increasingly becoming a trusted partner for their growing responsible and ESG fund allocations and we seek to provide them with all the building blocks they need. While the Nordea 1 – Emerging Stars Equity Fund was our first vehicle, we have been extremely pleased by the reception that our other ESG STARS strategies have received in recent years. For exam- ple, despite some scepticism surrounding the value of ESG within the US market, our North American Stars Equity Strategy has proven that it is possible to extract alpha in even the most efficient market, 1

Looking at the industry overall, significant flows have been allocated to thematic ESG strategies in recent years. With such a long track record in the ESG space, we have been fortunate to benefit from the trend through our Sustainable Thematic bou- tique. Building on our Climate and Environment capability, which is renowned across Europe, we

At a glance ` A decade on from the launch of its first ESG STARS fund, NAM now has 17 strategies across both equity and fixed income, and the group’s commitment to the cause is stronger than ever ` NAM’s ESG STARS range is poised to play a central role in adviser portfolio construction, particularly in relation to upcoming MiFID II requirements ` As it is crucial for advisers to get up to speed with the rapidly evolving ESG and sustainability landscape, NAM is ready to help at every stop along the journey

1 The performance represented is historical; past performance is not a reliable indicator of future results and investors may not recover the full amount invested. The value of your investment can go up and down, and you could lose some or all of your invested money.

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Christophe Girondel is convinced that NAM can be a strong partner to distributors and advisers, offering them all the building blocks they need in light of the upcoming regulation.

change and the transition towards a low carbon so- ciety are very complex issues, seeking to reduce the carbon footprint of your investment is a step we all can take today. At NAM, we call it ‘returns with responsibility’. The upcoming changes to MiFID II are likely to increase the already complex requirements for advisers. For those needing help in navigating these challenges, what steps are you taking to support this journey? At NAM, it is important for us to not only talk the talk when it comes to ESG, but to walk the walk. We know how crucial it is going to be for ad- visers to get up to speed with the rapidly evolving ESG and sustainability space. Thus, we want to be there to help them on every step of the way. One initiative we recently rolled out was a free responsi- ble investing online learning tool, which provides a quick and easy introduction to the world of sustain- able investing. The training also utilises engaging videos, animations and case studies to make the learning experience more enjoyable. A personalised certificate is generated upon completion, which is recognised with CPD credits in several markets. In addition to assisting in education, it is also ex- tremely crucial for us at NAM to be open and trans- parent in our disclosures. For example, we recently included ESG metrics in the monthly factsheets across our ESG-aligned fund range. In addition to this, we revamped our monthly ESG Report, which contains all the metrics from the factsheet, and so much more. The report includes disclosures like ex- posure to CO 2 emissions and high-impact fossil fuel reserves, human rights violations and governance controversies. Last but not least, we also document the engagement activities of NAM’s Responsible Investments Team. 

through the identification of sustainable corporate leaders. In addition, while our fixed income ESG STARS strategies are a more recent concept, the power of the ESG integrated approach within the bond universe is also being increasingly recognised by our clients. Could you tell us more about the ESG STARS con- cept in relation to fixed income – are there major differences from the equity strategies? As on the equity side, the portfolio managers of our fixed income ESG STARS funds work side-by- side with ESG experts from our award-winning Responsible Investments Team. The only difference is the desired outcome of our research. For our analysis of equities, we are seeking to identify competitive advantages resulting from higher ESG standards – these companies are more likely to be the winners of tomorrow. For fixed income, performing our ESG valuation for corporate and sovereign issuers helps to better assess the credit risk of the underlying investment. All issuers are given an internal ESG score, which represents our view on how well the company or sovereign entity is positioned in relation to ESG risks and opportunities.

What are the benefits of investing in an ESG STARS strategy for a retail client?

As an example, let’s take a look at the recent COP26 summit that has just taken place in Glasgow. Obviously, the most important item on the agenda was decarbonisation of our economy, the ‘net zero’ target. While people often feel they cannot make much of a difference in tackling such wide-ranging issues, by allocating to our ESG STARS strategies, your investments will have a significantly lower carbon footprint than the benchmark. While climate

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Less than 250 days to go: from August 2022, financial advisors will have to tailor their product recommendations to the sustainability preferences of their clients. For many, this will be a big change. PAI can help in finding the right fit. Changes to MiFID: are you ready?

In only a few months, amendments to the Markets in Financial Instruments Directive, or MiFID II for short, will come into force. Among other things, they will make it mandatory for financial advisers and distributors to enquire about the sustainability preferences of their clients and include them in the suitability assessment. If a cli- ent has sustainability preferences, the adviser must tailor their product recommendation accordingly. One way to do so is to offer investment strategies that take PAI elements into account. PAI is also a useful tool to identify sustainable investments, another way to achieve MiFID-eligibility. PAI brings a common language to the way managers consider adverse impacts. PAI, or Principal Adverse Impacts, are a way of identifying the negative impact that a company/issuer has on environmental and social aspects. Thus, a strategy that considers PAI elements is looking hard at the impact its investment has on both its surroundings and its stakeholders. Asset managers with a focus on environmental, social and governance (ESG) factors have long considered whether potential investments have a negative ESG impact, but the Sustainable Finance Disclosure Regulation (SFDR) has given a com- mon framework to this by introducing a specific list of PAI indicators that can be considered. Each indicator has at least one metric attached to it. The PAI indicators and metrics are very clearly defined, bringing greater confidence and comparability to analyses that rely on them. Although companies

are not yet obliged to report the data, this will come. Nordea Asset Management (NAM) has been incorporating a number of PAI-type datapoints in its ESG scoring systems for many years, yet the regulation provides further structure. PAI can help advisers identify funds that meet MiFID II sustainability requirements. From August 2, 2022, these changes to MiFID II will be implemented. With only months to go, financial advisers should start building a list of suitable funds they can offer to clients with sustainability preferences. PAI can be useful in this. 

Custom fit: from August 2022, financial advisers will have to customise their recommendations to their clients’ sustainability preferences. As the clock is ticking, it is essential to create a list of MiFID-eligible products now.

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Sustainability matters How important are environmental, social and governance (ESG) considerations to European retail investors? This question was at the heart of the survey that Nordea Asset Management (NAM) carried out over the summer. The result is clear: sustainability is at the top of investors’ agenda, and financial advisers have an important role to play in this context.

NAM gathered the views of 1,200 individual in- vestors in five European markets (Germany, Spain, Italy, France and Switzerland), asking them about their sustainability-related goals and what they expect of their advisers in that area. The results of the survey show that almost all European investors (89%) acknowledge sustainability as a key issue for society. They are aware of the impact that sus- tainability issues can have on their portfolios and, equally important, more than three-quarters believe their investment decisions can make a difference in creating a more sustainable society. The desire of creating a positive social and environmental impact is the main driver for investing in ESG solutions. The ambition of achieving higher returns comes only in third place.1 The majority of European investors cur- rently invested in ESG have increased allocations to ESG solutions over the last 12 months and 71% plan to do so within the coming 12 months. In line with these findings, 78% say ESG will continue to play an important role in their portfolios. When it comes to sustainability issues, the major- ity of surveyed investors think of the environment first. 63% of respondents point to global warming as the most alarming sustainability-related risk. On the flip side, climate change is also considered the most attractive investment opportunity in the next five years. Among younger investors, the social dimension of ESG is increasingly coming to the fore. Generation Z respondents, i.e. investors aged 18-24, view “S” investing as the next mega trend. Financial advisers have a key role When it comes to ESG, advisers have a crucial role as investors consider them the most important

The sustainability of their investment is important to retail investors in Europe. From their financial advisers, they expect guidance through the jungle of ESG approaches and terminology.

source of ESG information. “The coming years will bring increased demands for ESG investing, and investors will need even more guidance in their choices,” says Christophe Girondel, Global Head of Institutional and Wholesale Distribution at NAM. Thus, advisers need to step up their game. When the changes to MiFID II come into force in 2022, meeting regulatory mandates will require a robust knowledge of regulations and ESG, as well as a broad range of available MiFID-eligible products. “The investor shift towards sustainable solutions represents a massive opportunity for advisers who are early in recalibrating their business models to meet regulatory requirements and investor preferences,” Girondel continues. “At NAM, we are committed to making this transition easier by shar- ing our knowledge. We want to be advisers’ ESG partner of choice.” 

1 There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money.

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