Join Evan Rapoport, Founder & CEO of SMArtX Advisory Solutions, sits down with Duane Roberts, Portfolio Manager at Dana Investments, winner of the SMArtX Virtual Award for ESG/SRI Strategy of the Year.
Dana Investments has been managing capital for 42 years, initially as a fixed income investment firm, and then introduced equity investing in 1999. Their disciplined, intentional investment approach focused on managing risk became the centerpoint of their investment philosophy.
All the equity strategies are sector-neutral, relative value strategies, where the sector-neutral aspect is a function of risk control and the relative value portion is where Dana Investments is able to add worth to the investment process. They seek the most attractive relative company valuations within sectors and even within industry groups to determine investment ideas.
Strategy Overview
The Strategy holds a diversified portfolio of 50 to 55 stocks from our screened universe. Dana Investment Advisors fully integrates Environmental, Social and Governance (ESG) factors into our analysis. Comprehensive and balanced proprietary ESG rankings help determine companies for inclusion in the Strategy’s investment universe. Our investment process then incorporates a wide spectrum of valuation, growth, and profitability metrics to help identify securities that possess attractive valuation and growth characteristics relative to their peers. Risk controls are implemented throughout the portfolio construction process, and we look to add value with disciplined fundamental stock selection. The Strategy provides a blend of characteristics designed to help navigate through all market cycles.
Strategy Philosophy
Dana’s proprietary quantitative model draws on numerous E, S, and G factors from thirdparty vendors. Examples of Environmental factors include a variety of climate change impacts, metrics and targets (i.e., direct and indirect GHG emissions), regulatory actions or fines, disclosures, and policies. Social criteria include various measures of workforce diversity, human rights policies, product and workplace safety, labor rights and policies, and animal testing. Governance issues include auditing and accounting policies, Board composition and independence, CEO compensation, and more. The E, S, and G are equally weighted using a geometric mean to calculate relative ranks for the securities. This narrows our universe of stocks from over 3000 to under 1000. Financial modeling determines the relative valuation of these securities further narrowing our focus.
The Dana ESG investment process incorporates a variety of third-party vendors for ESG information, including MSCI, Sustainalytics, Institutional Shareholder Services (ISS), Trucost (owned by S&P), and Bloomberg. Additional sources include CSRHub, Refinitiv, Center for Public Accountability, RobecoSAM, Truvalue Labs, and Spring Pond Partners. From most of our vendors, we use selected raw data and scores within our proprietary quantitative ESG models. Other information is utilized for additional details on specific E, S, and G factors. We find that using multiple sources of ESG data is useful to identify controversial or contradictory arguments that we then review with added focus during our internal research.
We also incorporate negative screening (exclusions) for clients that have further concerns. Industries or products and activities we exclude are Adult Entertainment, Alcohol Manufacturing with revenue bands for inputs and wholesaling, Gambling, Military and Weapons (nuclear, landmines, cluster munitions, firearms or ammunition manufacturing, and revenue bands for conventional weapons),and Tobacco (revenue bands for tobacco suppliers).
Our Portfolio Management team then evaluates companies that rank best relative to sector peers. The greatest ESG integration with financials occurs here as the team ascertains the future growth and risks of each company. Portfolio construction includes sector-neutral weightings – a key aspect of our risk control. ESG Strategies include 50-55 holdings with strong ESG ranks within the entire universe and specific sector at compelling valuations relative to peers.
Lastly, our advocacy efforts align with the ESG factors we seek from a quantitative and fundamental analysis perspective. We vote proxies for clients that wish us to do so and engage companies one-on-one or in conjunction with other asset managers and nonprofit organizations. Thus, our process is consistent and integrated across all stages.
Firm Overview
Dana Investment Advisors (“Dana”) was founded and began managing assets in 1980. Dana provides both equity and fixed income investment management services to institutional and high-net-worth investors. Dana specializes in managing strategies for investors seeking above-market returns with lower-than-average risk. Dana’s client base is very diverse and includes municipalities, retirement funds, 401(k) plans, colleges and universities, hospitals, corporations, financial institutions, Taft-Hartley funds, religious organizations, endowments and foundations, and individuals. The firm has been independent and 100% employee owned since its founding. This independence allows Dana to build its business prudently with a proper focus on generating superior, consistent, risk-adjusted returns for its clients. Firm investment strategies are designed with specific objectives and risk controls, and are based on proven investment principles. While Dana has a national presence, it is headquartered in Brookfield, WI and maintains a strong Midwestern client base and culture.