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Informational advantage: the secret sauce of sustainable investing?

I’m fortunate that sustainable investing suits my team’s way of thinking: We are analytical and patient. We don’t particularly like the thrill of the chase, or trying to pick off 10% moves in prices. Instead, we prefer the challenge of identifying industries that will be structurally impaired over the long term and others with potential to grow through factors such as digitisation and data, decarbonisation or the increased focus on health.

And this all comes back to informational advantage. In my view, taking information that others aren’t looking at, applying it to your investment process on a methodical basis, and then backing your analysis over the long term should generally lead to good performance. I believe in the ‘aggregation of marginal gains’ approach that Sir Dave Brailsford applied to British cycling with such success. The decisions themselves can be relatively small, but they can aggregate over time to support investment performance.

A good example is from March as the Covid-19 panic engulfed financial markets. By having confidence in our fundamental analysis and a sense of the long-term value of companies, we were able to back our judgement and buy stocks at prices 40% lower than a few weeks before. The pandemic and lockdown might only affect one or two years’ earnings, yet our analysis shows most of the value in these stocks lies much further out.

Although sustainable investing, rightly, will always have strong social and environmental connotations attached to it, it is important to also acknowledge that it is also a value-adding investment style that should, over time, lead to investment outperformance. Embedding this sustainable, informational advantage, into our investment process was perhaps the single most value-adding decision of my investment career.

Mike Fox is Head of Sustainable Investments at Royal London Asset Management. Find out more about our range of sustainable funds – including the recently-launched RL Global Sustainable Equity Fund – at rlam.co.uk/sustainable

For professional clients only, not suitable for retail investors. The views expressed are the author’s own and do not constitute investment advice. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. For more information on the fund or the risks of investing, please refer to the fund factsheet, Prospectus or Key Investor Information Document (KIID), available via the relevant fund information page on www.rlam.co.uk

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