Turn to Alternative Assets for Downside Protection

ESG multi-asset investor Camilla Ritchie of 7IM is upping her exposure to cash and alternatives as stocks and bonds look expensive

Emma Wall 13 October, 2017 | 10:45AM
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Emma Wall: Hello, and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Camilla Ritchie, Manager of the 7IM Sustainable Balance Fund.

Hello, Camilla.

Camilla Ritchie: Hello, Emma.

Wall: So, why is sustainable investing the right way to invest?

Ritchie: Well, I think, it is the right way to invest because I think we should be looking at the environment, we should be good to people in social terms and the things we invest in should be governed well. So, that's very important. But I think what's also very important is that our clients who are invested in our fund should get a very good long-term performance from their fund because they give their money to us and it may be money for pensions, it needs to – the capital needs to be protected and it needs to perform well. And so, that is key. And it has been the case because this fund has been around for more than 10 years.

I can say that it has actually performed very well and has outperformed the sector that it's relative to and that's not the sector – that's not a sustainable sector. That is a sector comparing it with all the other funds in the balanced risk profile. So, that's really important, I think.

Wall: Yeah, that is key, because I think there is a view sometimes that people have to choose between ethics and profits. And what you are saying actually is that you can have both?

Ritchie: Well, I think so, yes.

Wall: And what then about the ESG elements? I know that this is very different depending on the different funds interpret it in different ways. Sometimes there are negative screens, sometimes there are positive screens. I know there are certain sectors that you will not invest in. What are they?

Ritchie: Yes. So, I do have some exclusions. And they are in the sort of things that people might expect, so there are no weapons, nuclear, pornography and a number of others. So, that's the exclusion bit. And then – and you could say the dark green negative screening. And then on the other side we do the positive screening which is to look for companies which are doing good.

So, we screen for environmental, social and governance and look for companies which are doing good things in those areas. So, I feel, look, the fund is doing things on making sure it doesn't have the bad things but also making sure it has the good things.

Wall: And on top of that, of course, there is the very important part of what you do, which is the asset allocation because this is a multi-asset fund. At the moment, where do you feel in which asset class are the most compelling investment opportunities? Because we are in a slightly interesting passé where both bonds and equities look rather expensive.

Ritchie: Indeed. Yes. And we discuss this at our asset allocation meetings which we have every quarter and that's when we do our major changes in the portfolios. And we've just had one of those meetings. And in fact, for the last few meetings we've been saying that we think that equity markets look very toppy, but also bonds, as you said, which makes life very difficult. But we do have something else that we can use.

We invest in alternatives and they are relatively uncorrelated with both equities and bonds, which means that if equities and bonds are looking a bit volatile, you hopefully will get your return from the alternatives coming through and that will make your overall fund a little less volatile than it might be if you just had equities and bonds.

Wall: Is this also perhaps a time for holding on to some cash in the view that the two major asset classes are looking so expensive? Or do you find that the alternatives is diversification enough?

Ritchie: No, we are actually holding quite an amount of cash also because we think that if – there hasn't been a setback in the market for a very long time. If we were to see a setback of more than 10% or so, it might give you the opportunity to get back into the market. And if you don't have cash sitting there, then you wouldn't be able to do that. So, we are using cash in that way.

I mean, some people would say that is a bad thing to have at these sorts of times because the return from cash is extremely low. But I think it's the opportunity cost of not having cash which is maybe a bit more important at the moment.

Wall: Camilla, thank you very much.

Ritchie: Thank you, Emma.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
7IM Sustainable Balance S Acc157.75 GBP-0.12Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

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