Annual Rebalancing Update for the PLURIMA Market Neutral UCITS Fund

LONDON, UK – Good Governance Market Neutral Strategy

Annual Rebalancing Update April 2024

The Good Governance Market Neutral Strategy is built to take advantage of the performance differential between the best and least well governed firms in the primary US large cap stock index, the S&P 500.   Well governed firms outperform less well run ones over time as we have observed, especially in times of uncertainty when there is a “flight to quality”.

Good Governance as a concept is a well-known but often underweighted component of the ESG (Environmental, Social and Governance) equation.  Our contention is that without good governance we cannot expect adherence to the E and the S.  A well governed company will set out and achieve ambitious E and S goals and additionally be well run financially with strong stakeholder relationships built on trust and consistency of delivery.

Good governance is crucial for achieving comprehensive ESG goals—without it, ‘E’ and ‘S’ goals fall short.

The quantification and measurement of ESG factors is fraught with difficulties as there is often an element of subjectivity in the targets and goals.  Various agencies produce ratings and scores across a range of metrics, but with no common standards there is a wide dispersion in scores.

At C8 Technologies, the leading provider of strategic decision support tools and services for the global investment community, we aim to bring new and improved solutions to investors.   In order to cut through the noise of ESG ratings we prefer to adopt a more effective approach.  We partner with GreenBlue Invest (GBI), a research division of Cité Gestion, and a pioneer in the study and measurement of Corporate Governance.  With roots in academia at IMD Lausanne and with a successful track record, the team are known as globally renowned practitioners in the field of company governance analysis.

Enhancing Signal-to-Noise: How We Cut Through Inconsistent ESG Ratings with Focused, Legal-Document-Based Analysis.

GBI’s Good Governance & Stewardship Model uses machine learning to analyse the annual (10K) reports of the S&P 500 companies published annually, using a set of word libraries to extract the meaningful elements of good governance.   Unlike other source data for ESG scores, a firm’s 10K is a legally binding document and therefore as high a quality source as anyone can access.

Our partnership with GreenBlue Invest leverages advanced machine learning to analyze key governance factors from annual reports.

Three word libraries are employed – Classical, Modern and Resilience & Agility.   Information on corporate beliefs, attitudes, values and actions are extracted, looking for signs of KPI’s such as Accountability, Long-Term Focus, Innovativeness and Prudence.

The publication cycle of 10K reports is annual and focused around March each year.    Once all reports are published they are run through GBI’s models and scored.   Thus we determine the Long and Short 100 stocks for the Market Neutral portfolio.  We take long positions in the top 100 stocks, market cap weighted to ensure we capture the nature of S&P 500’s construction.

We will short 80% of the value of the 100 least well governed stocks, leaving the strategy with a 20% long bias.  The strategy is rebalanced quarterly back to target weights.

From annual reports to actionable insights: GBI’s unique “Stewardship” model identifies top and bottom governance performers in the S&P 500.

We recently published a report “The Good Governance of the Magnificent 7 – Are They All Born Equal?” outlining the strategy’s approach to the 7 largest and most well known stocks.  In  that report we explained which stocks the strategy invests in and which we do not, and why.  Spoiler alert – they aren’t all equal!

In 2023 the Market Neutral strategy was structurally overweight Information Technology, Communication Services, Industrials and Consumer Staple/Discretionary stocks and short Financials.  Largest positions in the strategy echo the weightings of the S&P 500, namely Microsoft, Nvidia, Amazon and Apple.

Note that the strategy has an inherent ESG tilt and as such excludes long positions in the Oil & Gas, Tobacco and Defence sectors. Please contact us to discuss implementation be it SMA, Swap, Fund structure, etc.

This brings us to the 2024 rebalance.   Our partners at GBI have completed their annual analysis of the latest 10K reports and there are some significant changes in the balance of the strategy which offers valuable insights into the way corporate management teams see the future.

Annual and quarterly rebalancing ensures our portfolio reflects the latest governance insights.

The most profound change is in the weighting of Financials, notably Insurance firms, where the strategy moves from over 50% short the sector to virtually flat.  Obviously this is still an underweight vs the S&P 500 which comprises about 13% Financials – but nonetheless this is the standout shift for 2024.  A higher-for-longer rates outlook has undoubtedly fed into this change.

Our overweight in IT continues and we see Broadcom and Qualcomm arriving into our portfolio.  The increase in Financials has been largely at the expense of Consumer Staples/Discretionary, Communication Services (i.e. Alphabet) and industrials.  Again this can be ascribed to the impact of the Fed’s reluctance to loosen policy ahead of the elections as inflation remains sticky.

Characteristics of the Portfolio upon Rebalance:

2024 rebalance: Significant shifts in sector weightings reflect changing economic forecasts and corporate governance quality.

One more effect worth reporting for the year ahead is that the model is shifting towards a preference for large cap stocks.   The top 100 names represent 46.3% of the total market cap of S&P 500, up from 40.1% in 2023.

Key governance and risk management terms of 2024 indicate evolving corporate priorities and risks:

GBI found in its analysis that the key words of 2024 are business interruption, chatbot, customer experience, cyber insurance, cyber risk, cyber security, generative AI, algorithms, premiums and reinsurance.  For reference the words for 2023 included Chatgpt, OpenAI, Defi, NFT, Web3, Environmental, Mobilize and EAP.

The portfolio strategy is elegantly straightforward yet effective: it is long on the S&P 500’s top 100 well-governed companies and short on the bottom 100, maintaining a strategic bias that has consistently optimized returns.

For an in-depth exploration, please get in touch. We are happy to share the core and detailed research material behind the annual rebalance.

We welcome any inquiries or feedback you might have. Please do not hesitate to get in touch with our team.


About our Research Partners

Didier Cossin, Abraham Lu, Pascal Botteron:

Didier Cossin is Professor of Governance and Finance, Founder and Director of the IMD Global Board Center, Abraham Lu is a Research Fellow at the IMD Global Board Center, Pascal Botteron is Head of Investments at Cité Gestion Private Bank and CIO of Green Blue Invest, the ESG brand of Cité Gestion Private Bank. Contact:


About C8 Technologies

C8-Technologies is a provider of strategic decision support tools and services for the global investment community. We create industry-leading, research-enhanced solutions that clients use to gain insight and improved-transparency across the investment process. With over 20 years of expertise in index-research, data, and trade-execution, C8 powers better investment decisions by enabling clients to understand and analyse key drivers of risk and return. Through our cutting-edge technology, asset owners are able to confidently build and implement robust & effective portfolios.