Where bond fund managers are finding pockets of opportunity
Finding compelling investment ideas and solutions in global fixed income markets has hardly ever...
5 October 2019 marks the start of ‘Good Money Week‘, an annual campaign designed to raise awareness of sustainable and ethical options when it comes to bank accounts, pensions, savings and investments. And perhaps this year, more than any other, people will take action.
From taking our own coffee mugs to Starbucks, to recycling more of our household waste and using bags-for-life, most of us are making more ethical and sustainable choices as consumers. But when it comes to our investments, we’ve been remarkably reticent. Although ethical funds have been available for three decades now, funds under management represent a share of just 1.6% of the industry total*.
There are a number of reasons why investors may decide to take action today – here are four:
From David Attenborough’s Blue Planet II to Greta Thunberg’s school climate strikes and speech at the UN Climate Action Summit, there is no denying that public awareness of climate change and pollution are increasing. Not only this, but public tolerance of bad corporate practice, maltreatment of employees and communities, and many other environmental, social and governance (ESG) issues is lower today than it has arguably ever been in the past. As the public and the consumer start to demand more from companies and governments, practice is starting to change.
While common consensus is that millennials are driving demand for sustainable investments, a recent study by Schroders* has found that Generation X are equally – if not more – motivated to invest sustainably. 61% of Generation X (38-50 year olds) said they always consider sustainability factors when selecting an investment product, compared with 59% of millennials (18-37 year olds). Almost two-thirds of Generation X investors also agreed that all investment funds should consider sustainability factors and not just those designed as sustainable investment funds.
While 1.6% of all UK funds under management may not seem much, net retail inflows into ethical funds are on the up. In July they were £248 million** – a 50% increase on this time last year – and beating all other assets bar fixed income and mixed assets. Looking more widely, more and more pension funds in particular are integrating ESG into their strategies. According to EdenTree, ESG funds under management in the UK now total over £1.2 trillion. In addition, 46% of wholesale fund selectors across Europe now consider ESG factors for every one of their portfolios***.
All of these factors mean that more and more fund management companies are offering sustainable investment choices and are starting to incorporate ESG factors into their core investment processes. Professional investors are seeing that good practices generally result in good long-term investments. While there is a danger that some are simply ‘me too’ offerings, there are an increasing number of excellent ethical and sustainable funds from which investors can choose, that are generating excellent returns without sacrificing principles or our planet.
At FundCalibre, we’ve been Rating ethical funds for a number of years. Eight funds have an Elite Rating, with another recently launched fund on our Radar. These funds are:
This fund encapsulates the best ideas from the experienced team at Aberdeen Standard Investments, which manager Lesley Duncan uses alongside a ‘no compromises’ ethical screening.
This global fund has a focus on sustainability. Its managers have the help of an independent sustainability team to ensure standards are maintained and backed-up by strong engagement.
EdenTree are pioneers of responsible investing and offer even the most discerning client a justifiable investment opportunity. This is one of the oldest funds in its field.
This fund produces a monthly income by investing mainly in corporate bonds and some government bonds. The managers assess key environmental, social and governance factors of each company.
All companies within this portfolio must operate ‘within a safe operating space’ for each of nine environmental challenges and actively contribute to solving environmental challenges.
This investment grade bond fund has a high income target and ethical exclusions are simple: no mining, arms, gambling, pornography, animal testing, nuclear power, alcohol or tobacco.
This global equity fund excludes companies involved in many things including alcohol, animal testing and armaments, and each holding will also have to have at least one positive ESG attribute.
This fund is basically a combination of two successful funds from the Kames ethical desk: the UK Ethical equity fund run by Audrey Ryan and the Ethical Corporate Bond fund run by Iain Buckle.
This fund looks for quality, long-term growth companies and uses a pragmatic and sensible approach, ensuring company management are responsible and conscientious.
*Source: Schroders, April 2019, online survey of 25,743 people who invest from 32 locations around the globe. Research conducted by Research Plus Ltd.
**Source: Investment Association, 5 September 2019
***Source: Last Word Research, Q4 2018.