Building sustainable portfolios

Portfolio optimization tools can help you maximize sustainability exposures while limiting active risk.

That is often the goal of many investors: to improve the sustainability profile of their portfolios without straying too much from a market-cap weighted benchmark. So how do you begin building these sustainable portfolios? As a starting point, one might consider excluding some ‘undesirable’ categories from a given index or portfolio. But that is exactly that – a starting point.

In this paper, we will show how using portfolio optimization tools (we use the Axioma Portfolio Optimizer) combined with risk models can produce lower predicted tracking error , thereby freeing up the risk budget for compensated bets, and a more consistent stream of active returns and lower realized tracking error than just re-weighting stocks.

Download ‘Green Efficient Frontiers’ to: 

• Explore the benefits of integrating portfolio optimization tools
• View a step-by-step guide for the initial step in building sustainable portfolios
• Understand the interplay between different individual risk factors like industries and style factors