Responsible funds have soared in popularity over the last few years as the pressure has increased on companies to help the environment. UK investors have ploughed almost £30bn into such portfolios since the summer of 2020 and this area is still enjoying strong inflows*. Here we look at this growing sector, highlight funds that specialise in these investments, and look at where they are putting their money.
The phrase ‘responsible investing’ covers a multitude of areas and is used to describe portfolios embracing a variety of approaches. For example, some focus on ensuring companies are being run in a way to benefit shareholders, while others concentrate on firms that are more sustainable than rivals. Many will look to exclude certain sectors or companies, such as weapons manufacturers. It all depends on the fund’s mandate and the approach of the manager.
The green agenda has risen in prominence with fund managers supporting the transition to net zero emissions, according to the Investment Association’s most recent annual survey.
“The environmental sustainability agenda came into sharp focus in 2020 and firms are adjusting to large scale regulatory changes which centre on meeting ambitious net zero targets,” it stated.
It’s also clear where attention has been focused. “Climate change is clearly a predominant concern and the transition to net zero is an initiative supported by governments globally,” it added.
There is currently £83.9bn invested in responsible funds, according to data for June 2022 compiled by the Investment Association*. This represents a £11bn increase over the same point a year ago – and almost £29bn more than back in June 2020*.
Responsible investment portfolios saw a net retail inflow of £71m in June 2022, meaning the area’s overall share of industry funds under management was 6.1%*.
The good news is there’s no shortage of responsible funds to consider. That’s why it’s important for you to do your homework and look at what’s on offer.
Here we focus on four interesting funds that could be worth a look.
This fund was launched in April 2021, and the managers seek out companies that can create what they call “transformational change” in their sectors and society. Shares in certain types of company are automatically excluded. These include those involved in alcohol, tobacco, weapons, nuclear power, gambling, and animal testing.
It is co-managed by Craig Bonthron, Neil Goddin, Jonathan Parsons and Ryan Smith, and takes a concentrated approach by investing in between 35 and 45 companies. According to Artemis, the focus is on the companies which will “disrupt incumbents” and then displace them, with unsustainable, outmoded businesses unlikely to change quickly enough. “These emerging companies, we believe, can have a greater positive impact on society – and also deliver outperformance,” they have stated.
This is a global equities fund that looks for medium and small businesses whose products or services are making a positive impact on the world. It is run by Mark Rogers and Charles Montanaro and was launched in January 2020. It invests in six impact themes: environmental protection; low carbon economy; healthcare; innovative technology; nutrition; and well-being.
Favoured companies are profitable, make positive impacts, have understandable business models, have niche positions in growth markets, and have exemplary standards of ESG. The largest stock holding in the fund at 3.5% is in SolarEdge Technologies, which is an Israeli company that develops and sells solar inverters**. Other positions include Bruker, a US manufacturer of scientific instruments for molecular research; and Spirax-Sarco Engineering, a British producer of steam management systems**.
EdenTree is one of the most respected – and recognisable – names in the field of responsible investment and runs a range of funds. This fund invests in businesses that make a positive contribution to society and the environment through “sustainable and socially responsible” practices, according to EdenTree.
Sue Round, who co-manages the portfolio, is one of the country’s longest-running ethical managers with more than three decades’ experience. She is joined by Ketan Patel, who started at EdenTree as a research analyst in 2003 and became co-manager of this fund in September 2016. Many of the fund’s largest holdings will be familiar to UK investors as they include prominent names such as pharmaceutical giant AstraZeneca, which has the largest position of 5.36%***. Others in the top 10 list include Dechra Pharmaceuticals, Relx, Halma, Rentokil Initial, Genus, and Smith & Nephew***.
This is a multi-asset fund with an investment process that focuses on demonstrating how sustainable companies offer better growth and resilience. It is managed by Peter Michaelis and Simon Clements, and benefits from the sustainable team at Liontrust being one of the largest in the UK, with billions of pounds under management and a 17-strong team with more than 21 years’ experience.
The managers look at the world through the prism of three mega trends: better resource efficiency (cleaner), improved health (healthier); and greater safety and resilience (safer).
The fund is managed using Liontrust’s ‘Sustainable Future’ process, which identifies companies helping to create a cleaner, safer, and healthier world, as well as generating attractive returns. This list is then narrowed down to companies exhibiting superior sustainability management, that will deliver persistently high returns on equity and are attractively valued on a five-year view.
*Source: Investment Association, Table 14: Tracker and RI funds under management, June 2022
**Source: fund factsheet, 29 July 2022
***Source: fund factsheet, 30 June 2022
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.