In September 2011 Paul Schofield took over the running of this fund, which invests in companies with sustainable business practices.
At Allianz he attempts to integrate environmental, social and governance (ESG) factors into the investment process, while seeking to avoid those activities that could bring “reputational risk”, citing companies with links to weapons and tobacco as examples.
The manager adds: “In doing this, we aim to combine generating long-term competitive financial returns with a positive impact on society.”
Mr Schofield runs a fairly concentrated global equity portfolio of around 50 names, which is benchmarked against the Dow Jones Sustainability index.
“We are active stock pickers,” he says. “We build the portfolio from the bottom up, so the macroeconomic impact in the investment process is fairly limited. We try to ensure the stocks drive the fund’s returns, not any other factors such as currency or a regional or sector tilt. However, the research analysts are certainly free to utilise macro assumptions when they model and analyse stocks.”
There have been no significant changes to Mr Schofield’s portfolio recently, meaning turnover is particularly low at roughly 10 per cent for the year to the end of June.
The key investor information document reveals the fund sits at the riskier end on the risk-reward spectrum at level six, while an ongoing charge of 1.05 per cent applies to the clean ‘RT’ share class.
“At present, the market conditions seem favourable to the strategy and the fund is outperforming its benchmark,” the manager says. “As volatility in the market gradually picked up in late June and early July, the fund was particularly resilient.”
The fund has outperformed its peer group, the FO Equity Ethical sector, over one, three, five and 10 years, according to FE Analytics. The manager insists it has also performed well against its benchmark over the medium and long term.
Mr Schofield explains: “We believe the integration of corporate- and industry-relevant ESG factors into our investment process should contribute to better risk-adjusted returns – our long-term track record bears this out. Most academic work carried out on the topic confirms that a company that performs better in terms of ESG has a lower cost of capital, higher shareholder value and less volatility.”
Over three years to August 4 the fund has generated a solid 42.37 per cent compared to the 36.74 per cent delivered by its peer group, FE Analytics shows. Across 10 years, the fund has returned an even more impressive 91.35 per cent, beating its peer group that generated an average return of 56.51 per cent.
Mr Schofield attributes the fund’s performance over the past 12 months to stock selection, having generated a solid return of 8.83 per cent.
“Stock selection within the financials and consumer space has been strong, with stocks such as Visa, Wells Fargo, Starbucks and Nike significantly outperforming the market,” he observes. “All four stocks are high quality in our eyes and both consumer names certainly are the standard-bearers in their sectors for ESG risk management.”
But he cautions that these stocks have re-rated over the past year, making some of those names expensive now. Mr Schofield has responded by significantly reducing his portfolio’s position in Nike over the past 12 months.
The manager acknowledges that the materials and energy sectors have been the biggest detractors in terms of performance this past year against a backdrop of weak commodity prices.
“Holding stocks within the mining space over the past 12 months has not been as attractive compared to previous years,” Mr Schofield notes.
He also expects volatility to continue to pick up across asset classes, flowing through to equities as well.
EXPERT VIEW
Jake Moeller, head of Lipper UK and Ireland research, Lipper
This positively screened fund with a global remit has a modest return profile. It is likely to contain less exposure to more volatile smaller companies and it holds slightly more stocks than the Royal London Sustainable Leaders Trust. The vehicle’s stock selection leverages off the well-resourced AllianzGI team and Paul Schofield works closely with his ESG colleagues who are able to flex considerable muscle to lobby for better corporate outcomes.
