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By Calvert Research and Management

Boston - Calvert Focused Value Fund (CFV) was launched on April 29, extending our actively managed fund lineup in the responsible investment "value" space, where we perceived a lack of robust options. It is co-managed by the seasoned portfolio team of Aaron Dunn and Brad Galko, who apply an "opportunistic value" investment philosophy and approach similar to that of the Eaton Vance Focused Value Opportunities Fund (EIFVX).

While both funds consider environmental, social and governance (ESG) factors when evaluating potential investments and the material risks faced by certain industries, CFV adheres to Calvert's Principles for Responsible Investment. Like Calvert's other actively managed equity funds, we believe CFV will benefit from the combined expertise and insights of our fundamental equity investment, ESG research, and engagement teams.

In terms of strategy, CFV invests primarily in large-cap U.S. stocks, as represented by its benchmark, the Russell 1000® Value Index, but can invest across the market capitalization range, including smaller companies. Generally, the portfolio is concentrated, holding 25-35 positions.

Below, portfolio managers Aaron Dunn and Brad Galko discuss their sustainable and ESG strategy and approach for CFV.

An "opportunistic value" approach

No strangers to sustainability from a business perspective, we pursue a time-tested opportunistic value approach to investing. Our main focus is on identifying companies with robust business models and durable competitive advantages. We believe these characteristics typify companies capable of generating superior financial returns and compounding value over the long term.

Moreover, we think companies with financial discipline (as evidenced by well-capitalized balance sheets) and strong cash flow profiles are well positioned to weather cyclical and equity market downturns. In our view, these characteristics, integral to our opportunistic value philosophy, create businesses that are sustainable over time and through market cycles.

Applying a holistic lens to ESG

In CFV, we pair our proven opportunistic value approach with Calvert's time-tested approach to responsible investing. This additional lens analyzes companies on their ability to manage their ESG risks in a forward-thinking manner, further supporting our ability to identify and invest in robust companies that offer resilience in the face of market downturns. In this way, we believe CFV represents a strategy that incorporates sustainability from every angle.

One question that frequently arises is how are we able to create a value-styled ESG portfolio given the preponderance of industries with traditionally high negative environmental impacts — such as energy, materials and industrials — in the value universe.

We counter this in part by taking a more holistic, nuanced approach than the exclusionary slant of some strategies. Instead, we leverage our unique ability to identify companies in higher-intensity industries within the value universe that are successfully transitioning to a renewable or low-carbon economy.

Focus on sustainable leaders

We have invested, for example, in the parent of a traditional utility that is working to transition the world's energy generation toward more renewable sources. The company is also helping multinationals reduce their carbon footprint through clean energy purchase agreements and more energy-efficient technologies. These represent growth opportunities that we believe the market has not appropriately capitalized in the company's valuation.

We also own portfolio companies contributing toward a net-zero carbon future, tackling the challenge of reducing greenhouse gas (GHG) emissions from building operations, materials and construction — one of the world's leading sources of carbon emissions.


Source: Global Alliance for Buildings and Construction, 2018 Global Status Report; IEA.

Our strategy holds a building automation company that enables landlords to upgrade their buildings to continually reduce emissions in real time, while guaranteeing energy savings that enable owners to earn a positive return on the up-front investment — benefiting the landlord, building automation provider and environment.

The companies we invest in undergo rigorous ESG data analysis. Calvert reviews data from numerous reputable data aggregators and the companies themselves. However, our proprietary analysis has determined that around 95% of this data is not financially material to equity prices. The remaining 5% — amounting to hundreds of data points — is evaluated to determine ESG risk management leaders in each respective industry. We focus on these responsible leaders for inclusion in our Calvert value strategy.

Bottom line: Calvert Focused Value Fund offers investors an actively managed "value" option in the responsible investing space from a team with a longstanding track record. CFV pairs the team's proven opportunistic value approach with Calvert's time-tested approach to responsible investing.

Russell 1000® Value Index is an unmanaged index of U.S. large cap value stocks.

For more information about Calvert Focused Value click here.

For more information about Eaton Vance Focused Value Opportunities Fund click here.