Sustainable Fund Excludes Nvidia, Outperforms S&P with 9.1% Rise

Neuberger Berman's Sustainable Equity fund outperforms with a unique focus on sustainability, boasting a 9.1% rise this year without owning Nvidia.

By Bill Bullington

4/17, 02:42 EDT
AmerisourceBergen Corporation
Applied Materials, Inc.
Amazon.com, Inc.
Costco Wholesale Corporation
Alphabet Inc.
Microsoft Corporation
United Rentals, Inc.

Key Takeaway

  • Neuberger Berman's Sustainable Equity fund, led by Daniel Hanson, outperforms peers and the S&P 500 with a 9.1% rise this year and 29.4% annually, focusing on sustainability through a "shareholder lens."
  • The fund's shift towards high-quality growth names like Microsoft and Amazon, avoiding Tesla, Nvidia, or Meta Platforms due to valuation concerns, demonstrates a successful investment strategy.
  • Despite not owning popular tech giants Nvidia or Tesla, the fund matches S&P 500 returns in 2023 by balancing growth with tangible-value businesses like United Rentals and Cencora.

Sustainable Investing Approach

Daniel Hanson, a senior portfolio manager at Neuberger Berman, oversees the $1.5 billion Sustainable Equity fund with a unique approach that diverges from traditional ESG (Environmental, Social, and Governance) investing. Hanson, who has been with the fund for two years, focuses on sustainability through a "shareholder lens," emphasizing the importance of how companies treat their employees, customers, and communities. This approach, he believes, uncovers intangible factors and long-term drivers of quality outcomes, contributing to the "flywheel of good business outcomes." Hanson's strategy has yielded impressive results, with Sustainable Equity up 9.1% this year and 29.4% on a one-year annualized basis, outperforming its peers and the S&P 500 index.

High-Quality Growth Focus

Since taking over the fund, Hanson has shifted the portfolio towards high-quality growth names that exhibit durable competitive advantages and high-quality business practices. He emphasizes the importance of owning businesses with strong pricing power and the ability to grow enduring value, which is reflected in their financials. Hanson's investment philosophy is deeply rooted in understanding businesses inside out, preferring companies with strong management teams that possess an ownership mindset. This fundamental, bottom-up investing approach has led to significant changes in the fund's portfolio, including increasing positions in Microsoft and Amazon, and adding Applied Materials for its intrinsic value and potential in the semiconductor sector's growth.

Portfolio Construction and Performance

Hanson's portfolio construction strategy employs a barbell approach, balancing higher-growth, higher-valuation names like Microsoft and Costco with tangible-value-driven business models such as United Rentals and drug wholesaler Cencora. This approach aims to weather economic cycles where growth might not be favored. Notably, the fund achieved a performance matching the S&P 500's return in 2023 without owning Tesla, Nvidia, or Meta Platforms, which Hanson believes do not align with the fund's investment philosophy due to their valuation and business models. The fund's top 10 holdings now represent about 50% of the portfolio, up from a 37% weighting previously, reflecting Hanson's confidence in these high-conviction names.

Future Outlook and AI Interest

Hanson remains optimistic about the future, undeterred by concerns over elevated interest rates, given the resilience of the fund's high-quality holdings. He expresses excitement about the potential of artificial intelligence, particularly in large-cap names like Microsoft, Amazon, and Alphabet, where he sees a more stable investment compared to the hype around up-and-coming companies with unproven technology. Hanson differentiates the current enthusiasm for AI from the dot-com bubble of 2000, citing differences in valuations, IPO activity, and management sentiment, suggesting a more grounded perspective on the technology's potential.

Management Quotes

  • Daniel Hanson, Senior Portfolio Manager of Neuberger Berman Sustainable Equity:

    "Being customer-centric employers of choice, businesses that are viewed as positive to their communities—those all contribute to the flywheel of good business outcomes." "This is age-old, classic, fundamental bottom-up investing. We want to know businesses inside out." "The DNA of the company is to, frankly, exploit the user. That is their business model."