This week’s featured fund is the Alliance Trust Sustainable Future Managed fund.
Peter Michaelis, head of sustainable and responsible investment (SRI) at Alliance Trust, tells us more.
Tell us about what makes your fund unique.
The Sustainable Future Managed fund aims to provide a combination of capital growth and income through exposure to more sustainable businesses. It invests in predominantly global equities and fixed income, with an additional allocation to cash. The fund has an upper limit of 85% in equities and a lower limit of 45%.
It has separate specialist managers in each of these asset classes and the asset allocation overlay allows the fund to benefit from opportunities both within and across these asset classes, in order to take advantage of tactical and strategic opportunities. Also, the fund provides good diversification and the returns from the separate asset classes will offset each other.
How do you select which companies to invest in?
We choose the best equities and credit to invest in. We invest in more sustainable companies because we believe they offer better growth prospects and have better quality management. We construct three portfolios: UK equities; world ex-UK equities; and fixed income, and run each against conventional benchmarks. On the equity side, we seek to outperform these benchmarks by 2-4%.
Are there any companies you’d pick out as star performers or particular interesting?
First, Kingspan. The best way to reduce greenhouse gas, nitrogen oxide, sulphur oxide emissions and particulate pollution is through energy efficiency. Kingspan produces building products to improve thermal insulation and we forecast strong and consistent growth as regulation drives higher standards in energy efficiency
Acuity Brands is another energy efficiency play. This time on lighting: replacing incandescent and fluorescent with LEDs. Reduces energy use by two-thirds and maintenance and replacement costs.
We target healthcare companies meeting unmet medical needs, so Roche Pharmaceuticals is another. Roche has built a very strong franchise in cancer, diabetes and arthritis treatments. These medicines, when correctly prescribed, make a huge difference in quality of life for sufferers. As the global middle class expands, we will see continued growth in demand.
Finally, GW Pharma. Another healthcare company that we have held in the funds for nearly a decade. They have finally had success in bringing their cannabinoid MS and cancer pain treatments through regulatory hurdles. Although a small company now, it could lead to the opening up of a whole new class of treatments.
Why would the fund be attractive to sustainable investors?
If you want a fund that is invested in sustainable development themes; that has a low-carbon intensity; that avoids companies doing harm to society and the environment; and that aims to give strong capital returns and some income from exposure to global equities and fixed income, then the Alliance Trust Sustainable Future Managed fund is for you!
How would you respond to claims that sustainable investment funds underperform?
It is a common and unfortunate misconception that investment in sustainable funds or businesses has to be a trade-off with investment return. This is evidenced by the stellar performance of our range of Sustainable Future funds, with all of our funds ahead of their mainstream benchmarks or peer groups over three years.
For us, sustainable investing is about selecting companies that are successful because, rather than in spite of their focus on acting responsibly and contributing to a sustainable future. We believe that there are more and more people who are coming round to this view and who want to invest, or want people to invest on their behalf, in a way that mirrors their values
From a personal perspective, why should people consider sustainable investment more generally?
The case for sustainable and responsible investment (SRI) is a strong one. From an ethical perspective, the benefits are obvious; as such, a strategy allows investors to invest for their financial futures in a manner aligned with their own beliefs and values.
Increasingly though, SRI strategies make sense from a more pragmatic perspective, too. Why? Because a company operating in a sustainable manner is more likely to be a better long-term investment than one that isn’t.
Fund size: £412.9m as of December 31 2013
Launch date: February 19 2001