Sustainable funds with a value focus have soared in 2021, after the same style bias saw them lag last year.
In this study, Trustnet looks at the funds that have done the opposite.
Source: FE Analytics
Schroder Responsible Value UK Equity sums up the current rotation, invested in two of 2021’s biggest stories: UK and value.
It has made a total return of 17 per cent year-to-date, a significant contrast to last year when it lost 14.4 per cent.
It is run by Schroders’ value team, which assess whether a company is undervalued based on three main characteristics: cash flows, dividends and earnings.
In Schroder Responsible Value UK Equity, this is combined with specific responsible investment standards. It will not hold companies involved in military products and services, non-military firearms, pornography, tobacco, gambling, alcoholic drinks, high interest-rate lending or human embryonic cloning.
Top out of all sustainable funds to go from bottom to top quartile is SVM All Europe SRI.
The £20.7m fund is run by Hugh Cuthbert and Neil Veitch who take a “private equity style” approach. It is broken up into eight categories, the balance of which determines how aggressive or defensive it is: defensive, cyclical, stable financial, unstable financial, consumer cyclical, oil & gas, mining and finally technology.
Its biggest sector allocation is currently to cyclicals at more than 40 per cent, a bias which has contributed to the higher returns this year – 19.6 per cent so far. It is worth noting that it currently has no allocation to mining, oil & gas or stable financials, cyclical sectors that typically score poorly when it comes to ESG.
The managers engage with companies regarding different ESG elements, investing in those that seek to improve their ESG awareness, reporting and impact.
Royal London Investment Grade Short Dated Credit has made the list even though it is only up 0.3 per cent this year.
The £1.4bn fund will not consider bonds of companies that generate more than 10 per cent of turnover from armaments or tobacco. The ethical criteria is reviewed on a quarterly basis.
The fund, which holds an FE fundinfo Crown rating of four, has been managed by Richard Nelson and deputy manager Paola Binns since launch in 2015. In the latest monthly commentary, Binns said she expected QE to continue in the near term as the government and Bank of England will want to “avoid the increase in government bond yields that would result from a substantial increase in net supply”.
However, the managers believe the level of QE is likely to be reduced over time, and the “diminished support for the market is likely to result in higher long-term yields”.
Some funds on the list just consider ESG risk as part of their overall strategy for generating returns. For example, Federated Hermes Asia ex Japan Equity considers how well companies manage the three separate elements of ESG and how they’re improving on them. The $3.2bn fund is run by FE fundinfo Manager Jonathan Pines and Sandy Pei.
Several of the remaining funds have explicit sustainable investment goals and regard these as as important as generating returns.
Pictet Quest Emerging Sustainable Equities, which turned around its loss of 1.6 per cent in 2020 with a total return of 9 per cent year-to-date, is an example of this.
Manager Laurent Nguyen uses quantitative analysis to identify companies with “superior ESG characteristics” which he feels translate to equally “superior financial and sustainable characteristics”.
It also applies Pictet Asset Management’s exclusion policy, which stops its funds investing in companies deemed “incompatible” with its responsible approach, explaining that this integration has “become the norm in our processes”.
Fidelity Sustainable Water & Waste, which operates in the IA Global sector, has made a total return of 12.2 per cent this year, up from the 7.1 per cent it made in 2020.
It invests at least 70 per cent in global equities involved in the design, manufacture or sale of products and services in connection with water and waste management sectors. It is ultimately looking to invest in solutions to water-scarcity issues, taking into account themes such as population growth, environmental constraints, supportive regulation, urbanisation rates and global wealth creation.
There are several funds on the list that have made a loss so far in 2021, but are still top quartile in their respective sectors: EdenTree Responsible and Sustainable Short Dated Bond, iShares $ Corp Bond 0-3yr ESG UCITS ETF, Templeton Global Bond and Amundi Index Euro Corporate SRI 0-3 Y.