Pictet Global Environmental Opportunities, ASI UK Ethical Equity, Rathbone Ethical Bond and BMO Responsible Global Equity are four strong performing funds for investors wishing to make a difference, according to FundCalibre head of research Juliet Schooling Latter.
Interest in ESG (environmental, social & governance) strategies has grown in recent years as investor awareness of a range of issues has increased.
According to the most recent data from the Investment Association, ethical funds under management reached their highest levels in August.
At £20bn, ethical funds now represent 1.6 per cent of total industry assets – the highest proportion on record.
Ethical funds under management and as a proportion of total industry assets
Source: Investment Association
Indeed, Schooling Latter said the public have demanded greater change from companies and governments, fuelling the popularity of ESG strategies.
And this demand for change has been broad-based rather than concentrated in one particular age range or purely constrained to the institutional market.
“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,” she said.
“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.”
Below, Schooling Latter highlights the four ESG funds that she believes will serve investors well from a performance and ESG standpoint.
Pictet Global Environmental Opportunities
First up is the €1.3bn Pictet Global Environmental Opportunities fund overseen by Gabriel Micheli, Luciano Diana and Yi Du. The “unique” fund invests in companies active in clean energy, water, agriculture, forestry and “other areas of the environmental value chain”.
“The fund has identified nine environmental challenges including but not limited to: climate change; ocean acidification; biodiversity and freshwater use,” said Schooling Latter.
“All companies within the portfolio must operate ‘within a safe operating space’ for each of these nine areas and actively contribute to solving environmental challenges.”
Just over half of the fund is held in North American equities and as such top holdings include US names American Water, Ecolab, Equinix and Waste Management Inc.
FE Invest analysts described Swiss asset manager Pictet as a “pioneer in sustainable thematic investment”.
“For every stock added, the fund adjusts its positioning based on the ‘purity’ of the stock – that is, how much of the company’s business is exposed to the themes: the less related to the themes, the smaller the position,” they noted.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Pictet Global Environmental Opportunities has made a total return of 37.24 per cent over the past three years, compared with a gain of 37.8 per cent return for the MSCI World benchmark and a 30.74 per cent return for the average IA Global peer.
The fund has an ongoing charges figure (OCF) of 1.17 per cent.
ASI UK Ethical Equity
Schooling Latter’s second choice is the £312.3m ASI UK Ethical Equity fund, overseen by Lesley Duncan. The FundCalibre research head said Duncan takes the best ideas generated by the Aberdeen Standard Investments team and uses a ‘no compromises’ ethical screening to generate long-term growth.
“Duncan will have between 50 and 100 holdings, and will look to keep them for three-to-five years, expecting them to grow in value and also provide some income, though this isn’t the key focus,” she explained.
Duncan has managed the UK equity fund since 2004.
Over the past three years, ASI UK Ethical Equity has made a total return of 22.97 per cent compared with a 12.18 per cent gain for the average IA UK All companies peer.
Half of the portfolio is held in mid-cap FTSE 250 names, with just under a quarter of the fund invested in large-cap FTSE 100 stocks.
As such, its top holdings include a number of stocks found outside the large-cap names sometimes favoured by similar strategies. Companies such as FTSE 250 residential property developer Bellway Homes, online retailer Boohoo, furniture company Howdens, soft drinks company Fever-Tree and media company Entertainment One are among its top 10.
ASI UK Ethical Equity has an OCF of 0.90 per cent.
Rathbone Ethical Bond
Perhaps one of the best-known ESG bond strategies in the industry – Rathbone Ethical Bond – is Schooling Latter’s third pick.
The £1.4bn, five FE Crown-rated fund, overseen by Bryn Jones and Noelle Cazalis, invests in quality investment-grade bonds issued in sterling that provide a regular above average income to investors.
“It has a high income target and ethical exclusions are simple: no mining, arms, gambling, pornography, animal testing, nuclear power, alcohol or tobacco,” said the FundCalibre research head. “All investments must also have at least one positive environmental, social or corporate governance quality.”
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Rathbone Ethical Bond is up by 18.19 per cent over three years, while the IBOXX UK Sterling Non-Gilts All Maturities benchmark has made a gain of 11.92 per cent. Its average IA Sterling Corporate Bond peer is up by 11.65 per cent.
The fund has an OCF of 0.67 per cent and a yield of 3.7 per cent.
BMO Responsible Global Equity
The final fund on Schooling Latter’s list is BMO Responsible Global Equity, a favourite among fund pickers. Overseen by BMO Global Asset Management head of responsible global equities Jamie Jenkins and deputy manager Nick Henderson, the £593m fund targets long-term capital growth.
“This fund invests in quality growth companies from across the world, with a focus on sustainability,” said Schooling Latter.
“There tends to be a bias towards medium-sized companies and the managers have the help of an independent sustainability team to ensure standards are maintained and backed-up by strong engagement with company management post-investment.”
Over three years, the four FE Crown-rated fund has made a total return of 41.43 per cent, compared with a 37.8 per cent gain for the MSCI World index and a 30.74 per cent rise for its average IA Global peer.
BMO Responsible Global Equity has an OCF of 0.8 per cent.