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Fund Review: Sustainability

Introduction

Originally, ethical funds used to be seen as niche products with negative screens that were there for people with specific ethical ideas when it came to where they put their money.

In the 21st century times have changed, and while there are still ethical funds, there are also environmental, ecological and of course sustainability options for investors, making this investment approach much more mainstream.

As Mike Fox, manager of the CIS Sustainable Leaders fund run by Royal London Asset Management, says: “Funds of this nature have been around for a long time, so the degree to which people are interested in them does go through cycles – and those cycles follow investment performance, there’s no doubt about that.

“There are quite a few entities out there – universities, charities, local authorities – that have started, whether by choice or by requirement, to need more of an overlay of sustainability on their investments. There is definitely more interest coming through from the institutional space in terms of these funds, and of course it helps if the performance is good as well.”

Sustainability has an added advantage over the term ‘ethical’ in that it can include many different environmental, social and governance (ESG) themes, including resource efficiency, water management, health, safety and climate change, with many of these funds focusing more on sustainability as a pure investment trend rather than a moral choice.

The latest research from the Intergovernmental Panel on Climate Change (IPCC) in its Synthesis Report provides further support for these themes as an investment play.

It warns: “Continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems.”

Charlie Thomas, manager of the Jupiter Ecology fund, believes the report should serve as a political wake-up call for policymakers as they prepare for the United Nations Climate Change Conference in Paris at the end of 2015.

He says the report reinforces the issues on climate change, but that there is also the potential to avoid the most serious consequences, providing we change our approach to energy use.

“The IPCC’s Synthesis Report serves to reinforce our long-running view that energy-efficiency measures and alternative energy sourcing have become mainstream issues, with advances in technology making them increasingly economically viable options for consumers and businesses alike.”

While there may be some that consider sustainability a niche theme, the evidence suggests that in the future the demands of a changing climate, and the effects of a growing population, will make themes such as resource efficiency, water management and ecology ever more important, both as investors and individuals.

Nyree Stewart is features editor at Investment Adviser

THE PICKS

CF 7IM Sustainable Balance

Managed by the 7IM Asset Allocation team, this multi-asset offering was launched in February 2007, originally as the CF 7IM Ethical fund, with the aim of providing income and capital appreciation. It invests in fixed interest and equities with a tactical overlay. Industries that are automatically excluded include the tobacco sector, armaments, pornography, and nuclear power generation. For the five years to November 4 2014 it has delivered a reasonable 36.8 per cent return, while its three-year performance is equally steady at 27.48 per cent.

CIS Sustainable World

Part of the range of CIS Sustainable funds managed by Mike Fox at Royal London Asset Management, this £114.39m fund aims to provide medium- to long-term capital growth through global multi-asset investments. These must follow the CIS ethical investment policy, which includes full integration of financial, environmental, social and governance issues in the investment process. The fund is ranked in the top three of the IMA-listed sustainable or sustainability funds across one, three and five years, with a five-year return to November 4 of 81.28 per cent.

EDITOR’S PICK

First State Asia Pacific Sustainability

Managed by David Gait and Sashi Reddy, this £297m fund aims to invest in companies positioned to benefit from the sustainable development of the countries in which they operate. Investment decisions focus on three key areas: identifying companies that manage sustainability risks; sustainability opportunities; and those with a positive sustainability impact. The fund has delivered the best performance of the 13 IMA-listed sustainable funds over both three and five years, delivering a whopping 111.22 per cent return for the five years to November 4.

In this special report