Heartwood Investment Management has added two funds to its range of multi-asset sustainable investments, forecasting that is where future client demand will lie.
Defensive Sustainable and Cautious Sustainable, join the Balanced Sustainable and Growth Sustainable funds, all managed by Benjamin Matthews.
The strategies have been launched as segregated accounts on Heartwood’s platform, but Matt Hollier, head of investment product at Heartwood, confirmed “we have an eye to other routes we may make these accessible through down the line”.
Each fund will target a defined return over inflation and is run to a specific benchmark target (CPI plus) that is aligned to its risk profile.
Manager Mr Matthews has run two of the portfolios – balanced sustainable and growth sustainable – for the past two years, using the MSCI SRI benchmark as a reference point.
Mr Hollier explained: “I think a key point for us is, can we offer investors in this area a sustainable investment strategy that doesn’t ask them to compromise on the investment return they’re going to get?
“Critically, I think if you can do that to customers, then you’re not asking them to make a trade-off between their ethical or moral beliefs and their investment returns. Ideally, you want them to achieve both.”
Mr Matthews will use an initial negative screen when selecting assets for the portfolios.
“We’re keen to focus on what actually goes into the portfolio and we want the building blocks to have some sort of sustainable benefit to society,” he said.
“That’s looking at the environmental, social and governance (ESG) impact of investment and there are two parts to that: So a lot of the exposure has an ESG overlay where we’re investing in strategies that positively discriminate in favour of companies that score well on ESG factors.
“We’ve also got some thematic impact investments – be that renewable infrastructure, social impact bonds, green bonds, water infrastructure, smart materials – that we’ve deemed to have a targeted positive impact on society.”
In its balanced strategy, there is currently 8.5 per cent allocated to alternatives, which Mr Matthews said was focused on social housing via a social housing investment trust, and renewable infrastructure through two renewable infrastructure investment trusts.
The manager confirmed he has used cash and government debt to manage risk across the strategies but said he planned to lower his exposure to government debt and increase exposure to green bonds as part of a medium to longer term structural shift.
“Yes, I would prefer us to have more exposure to direct green bonds as a way of managing the risk in these portfolios,” he explained.
“But at the moment, looking at the UK sterling markets, it isn’t large enough yet for us to manage the duration and the risk in that part of the portfolio. But it is something that is developing, so you’re seeing a lot more bond issuance in the green bond space in the UK.”