Bloomberg Businessweek - USA (2020-01-27)

 FINANCE Bloomberg Businessweek January 27, 2020

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THEBOTTOMLINE Evenastheeconomybooms,seriouscredit

carddelinquenciesamongyoungpeopleareup.Andlendersare

showinglesscautionthantheydidafterthecrisis.

○ Canalgorithmssortthegood

corporatecitizensfromthebad?

Quants Go Looking for

Greener Stocks

OnJan.14,thechiefexecutiveofficeroftheworld’s

largestassetmanagerwarnedthatinvestorshadto

payattentiontoglobalenvironmentalrisks.“Climate

changehasbecomea definingfactorincompanies’

long-termprospects,”wroteBlackRockInc.’sLarry

Finkina lettertoCEOs.“Ibelieveweareonthe

edgeofa fundamentalreshapingoffinance.”Infact,

manybiginvestorsnowincorporateenvironmental

andothersocialfactorsintotheirstockpicking,

foratleastsomeoftheirfunds.But

facea realobstacle:Thedata’sa mess

Somecompaniesdisclosea lotof

information about sustainability,

laborpractices,orgenderequity.

Otherssayalmostnothing.Afund

managerbuyinga fewdozenlarge-

capU.S.stocksmaybeabletohave

analystsdigupenoughcorporateinfo

tomakea decision.Butthingsgethard

if youwanttobeabletochoosefromthou-

sandsofstocks,orevaluatesmallcompanies

oremerging-marketequities.

Quantitativeinvestorssaytheyhavea solu-

tion. Thesetraders usecomputers to sort

throughreamsofdata,andtheysaythey’rebet

terthananyoneelsewhenit comestom

inginvestmentdecisionsbasedonmessy

orincompleteinformation.Quantsare

“usedtofillinginthegaps,”saysAndrew

Dyson,CEOofQMA,a quantitativeinvest-

mentfirmthat’spartofassetmanager

PGIM.Itlauncheda sociallyconscious

investmentstrategyin2018.

QMA figured out a way to give companies a social

and environmental score even when they don’t

report a lot of data—tripling the number of stocks

QMA can consider, Dyson says. It starts by look-

ing at companies where there’s ample information.

Companies can be dinged for things such as high

greenhouse gas emissions or significant product

recallsandget good points for, say, having a human-

policy. QMA analyzes returns to isolate the

ctof responsible corporate citizenship. Then

themoney manager turns to the universe of

companies where there’s not enough infor-

mation. If a stock’s behavior is statistically

similar to those that are known to be good,

it canbeclassified as good, too.

Forsomesocially conscious investors,

ethod might be unsatisfying—

doesn’t eliminate the possibil-

tysome of their money is going

tocompanies with objection-

able practices. But QMA says

that it should produce a portfo-

lio that overall is tilted toward

better-behaved companies.

And other quantitative tools may

atch things traditional sustainabil-

ityanalysis might miss.

That’s because much of the data

onenvironmental, social, and gover-

nance issues—ESG, in the investment

world’s shorthand—comes from com-

panies themselves. “The question is

ways whether ESG information is

borrowers who’re at least 90  days past due is

expected to reach the highest level this year since

2010, according to a study by credit reporting com-

pany TransUnion. At the same time, the share of

seriously late payments in home, auto, and unse-

cured personal loans is projected to fall. Younger

borrowers are hurting the most. The number of

cardholders from age 18-29 at least 90 days behind

on payments has reached the highest level in about

10 years, according to the New York Fed.

Many cardholders assume they wouldn’t get

“The question

is always

whether ESG

information

is more of a

PR marketing

story”

limit increases if their banks didn’t think they

could handle them, says Carey Morewedge, a

Boston University marketing professor. “I don’t

think consumers have a clear idea of how much

they can afford to float on a credit card,” he says.

“Consumers may be inferring from the increase

that the credit card company believes they’re capa-

ble of taking on more debt.” —Michelle F. Davis

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