Best-in-class investment:

Question

BlackTom AI · Accepted Answer

Question restatement: Best-in-class investment involves evaluating investments based on a defined standard and selecting those that meet or exceed that benchmark.

Option 1: "involves selecting only the companies that overcome a defined ranking hurdle". This is the correct interpretation because best-in-class approaches typically require entities to clear a specific threshold or hurdle tied to performance, governance, or sustainability criteria before inclusion. It describes a selective process that emphasizes meeting or surpassing a defined standard.

Option 2: "uses negative screening to exclude companies". Negative screening excludes firms based on undesirable characteristics (for example, sin stocks or poor ESG scores). While negative screening is common in responsible investing, best-in-class is different in that it selects those meeting a positive benchmark rather than simply excluding others; it focuses on top performers rather than exclusion alone.

Option 3: "refers to selecting companies that fall under a sustainability-related theme". Choosing by a sustainability theme is more about thematic investing, where firms are selected because they align with a broad theme (like clean energy or water). Best-in-class, by contrast, concentrates on relative performance against defined hurdles within an existing universe, not solely on thematic alignment.

In summary, the essence of best-in-class investing is a merit-based selection process where only firms surpass a predetermined ranking hurdle, rather than broad exclusion or thematic grouping. The other options describe different investing approaches that do not capture the defining hurdle-based selection mechanism.

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