The third stage covers fundamentals, with the team ensuring the companies it invests in have robust business fundamentals with proven ability to deliver high returns on equity through sustaining margins and asset turnover.
The valuation stage sees the team integrate its view of quality into these businesses, predicting the likely sales, earnings and other financial returns they expect to see from these companies over the next three to five years. The team specifically targets a return in excess of 10 per cent a year.
On the fixed income side, the managers aim to produce an income yield, with the prospect of some capital growth, by investing predominantly in corporate bonds and by actively managing the interest rate exposure.
In conjunction with its sustainable franchise, the team is heavily involved in discussions with company management. In 2019, the team met with 185 companies face-to-face and raised 245 key ESG issues.
The final portfolio has 40-60 holdings. It can hold 60-85 per cent in equities, 0-40 per cent in bonds and can hold up to 10 per cent in cash. The fund has an ongoing charge of 0.88 per cent.
Backed by an experienced and excellent team, this fund has everything in its favour. It has a well-defined process which has emphatically proven sustainable companies have better growth and are more resilient than the market gives them credit for.
Darius McDermott is managing director of FundCalibre