With investors faced with the option of whether to gain exposure to a particular asset class via active or passive strategies, many are now looking at when the added value of active management is preferable. As noted in our previous article we believe both approaches have a role to play, but selectivity is required. Here we explore how certain managers at Henderson employ techniques often associated with ESG (environmental, social, and corporate governance) investing and which are omitted from the passive approach.

Beyond the metrics: which active techniqurs add value? | janus Henderson Investors

In the most part, a company's valuation cannot be explained purely by its financial metrics. There are therefore a number of techniques that active managers use to assess the quality of companies and, in turn, seek to deliver added value to investors.

In carrying out deeper dive analysis of an opportunity, many managers at Henderson use a range of approaches. At an industry level, some of these techniques are grouped together under ESG (environmental, social, and corporate governance) investing. While most of Henderson's investment teams do not explicitly manage products to ESG criteria, certain techniques help form a three dimensional view of a company, and may increasingly differentiate the make-up of active and passive portfolios across the industry.

At Henderson, we believe there is an underlying logic to the ESG ethos - companies engaging in unsustainable or unethical business practices, with short-termist or inexperienced management teams, are unlikely to make sustainable returns for investors. Indeed, research from Deutsche Bank, HSBC and Harvard Business School, suggests a more holistic approach helps drive outperformance and is an important part of investing that is missed by many passive funds.

The factors considered important when assessing companies are many and varied. They can range from the impact of climate change, the use of clean energy and technology through to shifting demographics, the use of artificial intelligence and assessing sustainability within the supply chain. Reputational risk carries significant weight in financial markets, and how investment managers engage with companies can have marked implications for portfolio returns. Incorporating these considerations within a passive approach is challenging. At Henderson the vast majority of managers take these factors into account and place significant value on meeting company management to properly assess the risks.

Here we explore some of the techniques employed by a selection of Henderson's leading managers, and examples of putting them into practice: