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ESG target-date funds aim for performance and sustainability

Natixis Investment Managers’ Ed Farrington

While the earliest adopters of Natixis Investment Managers' ESG target-date funds are skewing toward companies that focus on sustainability as a part of their business, "we don't think that is where this will end," said Ed Farrington, Boston-based executive vice president, retirement securities, at Natixis.

"I think over time this will be viewed as a performance story," as well as for the funds' sustainability features, Mr. Farrington said. "We know there will be those that demand both."

The Natixis Sustainable Future Funds invest in ESG-minded companies that focus on areas like population growth, increasing urbanization, an aging population, tech breakthroughs and climate change.

"Our belief is that companies in these categories are solving for the world's biggest issues, and they stand to deliver attractive long-term growth potential," Mr. Farrington said.

Outside of a 2% allocation to cash, each of the funds are made up of six underlying strategies — a global sustainable active equity strategy managed by Mirova, Natixis' ESG affiliate; a carbon-neutral S&P 500 index strategy managed by Mirova; a global green bond strategy managed by Mirova; a passive domestic large-cap value equity strategy managed by Active Index Advisors that leverages Mirova research to apply ESG screens; an inflation-protected securities strategy managed by Loomis Sayles & Co.; and a limited term government and agency strategy managed by Loomis Sayles. Active Index Advisors and Loomis Sayles are also Natixis affiliates.​

In looking at the ESG qualities of the two Loomis Sayles strategies, Mr. Farrington said the U.S. government is generally viewed as ESG neutral as long as there is a respect for workers' rights and there are fair and open elections in the U.S.

Loomis Sayles also is a signatory to the Principles for Responsible Investment, a global network of investors committed to integrating ESG considerations into their investment practices, Mr. Farrington noted.

The glidepath is overseen by Wilshire Associates Inc.

There are now 10 Natixis Sustainable Future Funds with five-year vintages ranging from 2015 to 2060.

The net expense ratio on each of the funds is 65 basis points.

For the period from inception on March 1, 2017, through Jan. 28, the highest performer was the 2050 fund, which returned 27.3%. The lowest returning fund over the same period was the 2015 fund, which returned 14.3%. As of Dec. 31, the target allocation for the 2050 fund was 92% equities, 6% fixed income and 2% cash, while the 2015 fund had 47% equity, 51% fixed income and 2% cash. For the same time period, the S&P 500 Target-Date 2050 index returned 20.37% and the S&P 500 Target-Date 2015 index, 10.79%.

Arguing for the inclusion of ESG-focused funds in DC plan lineups, Mr. Farrington pointed to a 2016 Natixis survey where 71% of the 285 millennials surveyed said they would be more likely to contribute to or increase their contributions to their retirement plan if they knew their investments were "doing social good." Seventy-seven percent of millennials also said they would like to see more socially responsible options in their retirement plans.