asset allocator header image

Asset Allocator

from Asset Allocator

ESG portfolios stick to usual suspects for bonds; Baillie Gifford's American dream still has backers

Been forwarded this email? Sign up here.

For our fund selection podcast, tune in on Acast or Spotify, or find us on Apple Podcasts.

The bonds that tie

Janus Henderson and Threadneedle run the most widely-held equity and bond funds respectively among the ESG portfolios on our database. 

The £1.9bn Janus Henderson Global Sustainable Equity fund is held by nine of the fund buyers on our list.

It has strongly outperformed the IA Global sector over the past five years.

That sector, of course, comprises funds that mostly do not have an ESG mandate and has returned 45 per cent over the past five years, compared with 55 per cent for the Janus Henderson fund, which is managed by Hamish Chamberlayne.

This outperformance has, of course, been assisted by the fact an ESG fund would be extremely likely to be invested in growth stocks which have done well recently.

Threadneedle Social Bond tops the fixed income charts on our ESG database, and is also held in nine portfolios. 

This fund, run by the appropriately named Simon Bond, is just £396m in size - perhaps highlighting that the ESG fixed income space is less well-established than the equity universe.

The big boy in this space is of course Rathbone Ethical Bond, which is £2.5bn in size and sits in second place, held by eight DFMs in their ESG portfolios (in a sign of its popularity, it is also the most widely-held corporate bond fund in non-ESG portfolios).

But most of the five most popular bond funds in ESG portfolios are well under £1bn in size.

Threadneedle Social Bond has sharply underperformed the wider IA Sterling Corporate Bond sector over the past three years, though it should be seen in the context of it competing against products which don’t have any ESG requirements - and there has been no growth tidal wave for ESG funds to ride in the bond world, as there has been with equities.

Though it is not written in stone that an ESG bond fund must underperform - Rathbone Ethical Bond outperformed over three years, as did the next most popular corporate bond funds among DFMs such as Aegon Ethical Corporate Bond and Liontrust Sustainable Future Corporate Bond which are held by four and six allocators respectively.

Indeed, while the ESG equity sector is hugely competitive, with four different funds each held in eight portfolios, the fixed income universe is dominated by a couple of titans, with a long tail of products held by just one or two allocators.

The huge inflows into actively managed ESG funds in recent years is a story that has been well told and some areas are more developed than others.

Whether DFMs will show a wider range of bond funds some love as the ESG world develops, only time will tell.

Quarter daze

Asset Allocator has previously highlighted that Baillie Gifford’s AUM dropped by 10 per cent in January alone, while in February the firm experienced its highest ever outflows.

Data from Morningstar and compiled by the AJ Bell platform puts a bit more colour on the performance side of the ledger by revealing that three of the 10 worst open-ended funds in the UK market in the first quarter of 2022 were run by the Edinburgh-based fund house.

Those are the previously high-flying Baillie Gifford American fund and the firm’s European and UK Smaller Companies mandates.

Baillie Gifford is the only firm to have more than one fund in the top 10 worst performers, a list where exposure to Russia or the growth style of investing is predominant.

The Baillie Gifford US fund lost 22 per cent during the quarter, but has its backers among the allocators on our database, being the third most popular active US mandate among the allocators on our list, being held in five portfolios.

There have been some sell notices over the past year as fund buyers ponder the level of their growth equity exposure, but at least one DFM has bucked the trend and bought into the fund in the first quarter of this year.

The S&P 500, which is the Baillie Gifford fund’s benchmark, had an awful start to 2022 but it has since rebounded and is up more than 11 per cent over the past 12 months.

No doubt a few DFMs feel they may have picked up a bargain.

Get the story behind the stories
The daily newsletter for fund buyers