In an environment where a handful of mega-cap stocks drive most index returns, how can investors maintain disciplined, well-diversified exposure to US equities?
ABN AMRO Investment Solutions’ ongoing dialogue with Parnassus Investments aims to answer exactly that. As part of this process, Eric Gerritse, Senior Analyst Manager Research, US Equities at ABN AMRO Investment Solutions, plays a central role in overseeing and challenging the strategy. Through structured monitoring and rigorous engagement, AAIS ensures the portfolio remains aligned with its risk profile, its valuation discipline, and its long-term objective of delivering consistent, high-quality US equity exposure for investors.
How does ABN AMRO Investment Solutions monitor its mandate with Parnassus Investments? Concretely, what is AAIS’s contribution in monitoring and challenging this strategy: which aspects do you prioritize in your dialogue with Parnassus?
We frequently interact with the portfolio managers about the choices they make in the portfolio and whether they are in sync with the risk profile for this investment philosophy and investment style. These interactions with the PM team take place at least every quarter and typically more often, as we have ad hoc calls with the team. Sells are of particular interest to verify whether their original investment thesis, proprietary fundamental research, and expected return projections have materialized. Buys are scrutinized on their moat, ESG profile, relevancy, expected return, valuation, and the management track record. The sizing and relative positioning of their largest positive and negative active positions against the benchmark tend to be a regular focus point when we challenge their portfolio and risk management.
What message would you like to convey to investors regarding AAIS’s current US Equity convictions?
As a manager selector at AAIS, an important objective is to source attractive risk/return profiles for our clients irrespective of the investment style. In the case of Parnassus Core, launched in 2017, we created a UCITS investment vehicle in an investment style and risk/return profile that was not available in Europe. We have always believed AAF Parnassus US ESG Equities is a highly differentiated US large cap core proposition for European investors. It has unique, consistent, and predictable characteristics that, in our opinion, fill a void in the US large cap core universe in Europe.
We see the fund as an attractive alternative to highly concentrated and less diversified naïve market-cap-weighted ETFs on the S&P 500 Index and/or MSCI USA Index. These indices are currently exceptionally concentrated and dominated by a few mega large-cap stocks. AAF Parnassus US ESG Equities Fund is a much better diversified portfolio managed by a seasoned portfolio manager backed by a large team of experienced analysts.
The team has a disciplined approach to valuation, not overpaying for future growth expectations and invests in strong companies with high-quality businesses, strong moats, and long-term relevance. The portfolio’s return profile demonstrates a consistent and predictable pattern: the ability to outperform in challenging equity market conditions while reasonably participating in strong bull markets.
In our opinion, it is crucial for investors in US equity to remain invested in this important asset class, even in highly uncertain market conditions, as asset allocation calls can be detrimental to long-term performance. AAF Parnassus US ESG Equities Fund offers investors who are neutral to positive, but cautious, on US equity a unique opportunity to remain invested in a solid portfolio with a lower risk profile than the benchmark.
The portfolio manager has a strong 25-year track record managing this underlying strategy. The predictability of the fund’s risk/return profile is one of the features that makes it so compelling from our perspective.
These topics are explored in greater depth in Meet with Parnassus, a dedicated video featuring ongoing conversations between Todd Ahlsten, CIO & Lead Portfolio Manager at Parnassus Investments, and Eric Gerritse, Senior Analyst Manager Research, US Equities at ABN AMRO Investment Solutions.
The opinions expressed above are current as of the date of this article and are subject to change. Main risks are: Equity markets risk, Liquidity risk, Counterparty risk, Operational and custody risk, Capital loss, Sustainability risk, ESG risk, Taxation risk, Warrant risk, Derivatives risk. For the definition of the risks and more information about the fund, please refer to the Prospectus available at www.abnamroinvestmentsolutions.com.