Sustainable investment funds offer a broader exposure to environmental, social and governance (ESG) themes rather than focusing on a specific area. These can be a great option for newcomers to sustainable investing or those who are yet to determine the exact areas that are most important to them.
A major benefit of taking a broad approach to ESG is that the fund’s performance may be less volatile compared to a fund which focuses on just one theme or industry. However, investors still need to do their homework – check the fund’s strategy and how the manager makes decisions about which companies to invest in and avoid as there are various approaches they might take and not all of them may suit your world view.
Royal London Sustainable Leaders Trust
The Bronze-Rated Royal London Sustainable Leaders Trust invests predominantly in the UK (around 78% of assets currently), aiming to find companies making above-average efforts in corporate responsibility. Manager Mike Fox wants businesses providing services that improve the environment or enhance human health and safety and likes to back businesses he believes are underrated by the market. Top holdings include healthcare giants AstraZeneca and Smith & Nephew, but also pest control firm Rentokil Initial and credit reporting company Experian.
The fund launched in 1990 (then part of the Co-Operative Group, which was acquired by Royal London in 2013), making it one of the older ESG strategies available to investors, and the long-term track record attests to the fact that sustainable investing can reap rewards: the fund has produced annualised returns of 11.7% over five years, and 11.5% over 10 years.
Morningstar analyst Samuel Meakin points out that as the fund limits its exposure to certain sectors, returns can veer away from the benchmark, such as in 2016 when a lack of resources stocks caused the fund to lag. However, he adds: “Since the fund moved from negative screening to predominantly positive sustainable screening in 2003, which broadened its remit, it has outperformed the FTSE All Share and UK large-cap equity category.”
UBS ETF MSCI EMU SRI EUR
This acronym-heavy fund tracks the MSCI EMU index – nothing to do with the animal, it stands for European Economic and Monetary Union and consists of 47 countries across 10 developed European markets including France, Germany and the Netherland.
The ETF, which has a low annual charge of just 0.28%, focuses on the socially responsible investment (SRI) part of that index, which targets companies within the EMU which have high environmental, social and governance ratings compared to their peers.
This means the fund takes a best-in-class approach, so you will find potentially contentious sectors and companies within the portfolio such as energy giant Total, which accounts for 5% of assets. The index does, however, screen out companies involved in activities such as nuclear power, tobacco and gambling. The portfolio contains 64 of the 246 names in the EMU index, and top holdings include financial services group Allianz, beauty brand L’Oreal and electricals firm Siemens.
The fund has a five-star Morningstar rating and a five globe sustainability score. It has delivered annualised returns of 13.2% over five years. Morningstar analyst Kenneth Lamont says: “Since this fund switched its benchmark in 2015, it has been one of the very best performing funds in the Morningstar eurozone large-cap category.”
Stewart investors Worldwide Sustainability
Best-in-class research and a stable and experienced investment team has earned the Stewart Investors Worldwide Sustainability fund a Silver Morningstar analyst rating.
The investment team like quality companies with strong franchise or brands and top investments include Marmite-maker Unilever and German business Henkel, which is behind brands such as Persil and Schwarzkopf; indeed, around a third of assets are in defensive consumer companies. The portfolio is fairly concentrated with only around 50 holdings at any one time, but is well-spread geographically with investments across the eurozone, US, Japan and Asia.
Morningstar analyst Ronald van Genderen says low turnover and a concentrated number of investment means the fund’s portfolio will tend to go in and out of fashion, giving investors a potentially bumpy ride but it should be well-placed to hold up when markets falter. Certainly, the fund’s positioning doesn’t seem to have harmed performance in recent times – it has delivered annualised returns of 12.7% over five years.
Van Genderen also rates the fact that Stewart Investors encourages its investment teams to be aligned with their investors by paying part of a team’s bonus into the funds. He adds: “A class of research that stands at the top of its peers, accompanied by a stable and insightful team, the fund is one of the rarer breeds in global equities.”
