1. What are you trying to achieve for investors with this fund and what part could it play in a wider portfolio?
This sustainable fund aims to outperform broader global equity markets by using a bottom-up stock picking approach with a 5 year investment horizon. Launched in 1999, it was one of the first global sustainable funds open to investors and now has significant assets, ensuring ample liquidity.
The fund limits its investment universe through hard exclusions, but also uses a best-in-class approach, leveraging multiple data providers to address the discrepancies in ESG data. This, combined with a concentrated portfolio of 40-60 stocks, allows for differentiated returns driven by conviction equity holdings.
Uniquely, the fund relies on stock picking as the primary driver of investment returns, seeking to avoid taking on too much factor risk, which can be a common challenge for sustainable funds. This is achieved through the fund's proprietary investment approach.
2. Can you give an overview of the team and investment process behind this strategy?
The team has been investing in Sustainable equities since 2005 and have worked together for over five years as co-managers.
This sustainable equity investment process is based on a 5-10 year outlook, with a focus on identifying companies that are mispriced relative to their long-term potential. The team believes that there are only three ways for a company to be mispriced:
1. A good quality growing company that is mispriced simply because people are looking at the next two years and not the next 5-10. The team's edge is in modelling a probabilistic future and discounting it appropriately. These companies make up 50-100% of the portfolio.
2. A quality and growing company that the market dislikes for cyclical reasons. These companies make up 0-25% of the portfolio and represent the team's value component.
3. A quality growing company undergoing significant change. These companies also make up 0-25% of the portfolio.
When combined, these three disciplines provide a powerful way to reduce factor risk and provide uncorrelated returns while maintaining valuation discipline.
3. What is your engagement strategy on the fund and how do you measure your impact in this area?
We believe that buying the "perfect company" leads to lower volatility, but also lower returns over time. In a concentrated portfolio of c40 stocks, investors will likely encounter some companies with challenges. Our preference is to buy great companies with temporary or fixable issues, where engagement can be a powerful value creator.
Many of our portfolio holdings have what we describe as lighter engagements, such as those focused on board diversity or pay alignment. However, there will always be companies with more material issues, or smaller companies that lack the resources to deal with the increasingly complex demands from shareholders and regulators. We typically have four to six substantial engagements per year where engagement activity is key to the investment case.
Our location in Europe and our focus on engagements since 2005 gives us a genuine advantage. In almost all cases, engagements are successful through collaboration, but they require data, resources, and culture to be effective.
All of our engagements are documented on our proprietary engagement portal. While it can be difficult to measure the success of engagements, it is easier when the investment case is anchored on successful engagement.
All data as of 31st September 2023.
To find out more or discuss further, please contact your local Business Development Director
