The portfolio is run by a team of four led by Mr Franks, who, having been part of the team since launch in 2009, became lead manager in April 2016 when Tim Dieppe retired.
The process starts by identifying sustainability challenges, with the fund currently focusing on nine investment themes – five of which are environmental: cleaner energy, resource efficiency, water management, environmental services and sustainable transport. The remaining four are social challenges: health, wellbeing, education and safety.
Mr Franks explains: “Sustainability is the overriding idea [and] we have these nine themes. We’ve got companies that qualify as providing solutions under those themes because they have more than 30 per cent of revenues and profits coming from an activity that addresses them.” But he adds it is normally much more than 30 per cent on average for the firms the fund invests in as the team tries to identify businesses where sustainability is the core of what they’re doing.
In addition to meeting one or more of the investment themes, the firms then undergo further analysis using environmental, social and governance factors. “We use [these] factors to identify companies that have a better approach to where they are in the world: they have a longer-term view, a better understanding of where their stakeholders are and they’re not just driven by short term profit motivations,” the manager says. “We invest in them and we hold our investments for at least six years. We have a long-term view of how long you hold these companies for and we let the power of sustainability transmit through to returns.”
Therefore macroeconomic factors such as interest rate changes do not affect the process, though he acknowledges there are some larger-scale issues that can have an impact, such as the energy price to some extent, the degree of technological change, the COP21 agreement and more recently Brexit. Mr Franks says: “COP21 was definitely a big deal, if you’ve got a long horizon and a six-year holding period. Even though it’s quite vague, the fact we did have an agreement from governments [meant] you could say there would definitely be a global sense that good technology to help sustainability would benefit from COP21.”
| EXPERT VIEW - Robert Love, head of research, Asset Intelligence |
Verdict WHEB has established a strong team in recent years with a number of notable additions in 2012. The fund has since been one of the most consistent performing sustainable vehicles in the IA Global sector. But prior to this it appeared to struggle, lagging both the benchmark and sector since launch. With 63 holdings at the end of June, this unconstrained fund provides a high-conviction, multi-thematic offering with a bias for mid caps. Regional exposure is similar to that of the MSCI World benchmark, though the fund’s sustainable mandate leads to a wholly different portfolio. However, we prefer other funds in the space, though we believe this fund provides an interesting opportunity for investors. |
The fund’s retail A accumulation share class sits at a risk-reward level of five out of seven, while ongoing charges are 1.7 per cent, the fund’s key investor information document shows.
Performance has been steady, with the fund outperforming both its sector peers and the benchmark for the three years to July 25. The A accumulation share class delivered 39.7 per cent in the period compared with the IA Global sector’s average return of 28.6 per cent and the 39.6 per cent gain in the MSCI World index, data from FE Analytics shows.
Mr Franks highlights that among the nine sustainability themes, resource efficiency and health have helped performance. He explains: “We’ve had lots of really interesting companies with good technologies that have had strong sector growth themes and not been troubled by fears over global economic growth, [which have been] exacerbated by Brexit and the general sense that growth is slowing. Our resource efficiency names have got a different growth track, because they’re providing technology around LED lighting or factory automation, or building efficiency. They’ve done really well and it’s a pleasing reflection on our investment process.”
In terms of detractors, sustainable transport has struggled with concerns over lacklustre economic growth, which have hit related stocks, while cleaner energy has been the largest detractor to performance. Solar energy in particular has “done very badly”, the manager says. He suggests this is not related to the take-up of cleaner energy, which is continuing to grow, but the fact the structure of the industry makes it difficult to translate this growth into investment returns.
