Webinar: Reframing the narrative: “Do Good, Do Well”

Canaccord's investment director and head of ESG investing Patrick Thomas covers the following topics:

• The evolution of sustainable investing 
• Problems with existing approaches 
• Why a thematic approach works for both risk adjusted returns and generating meaningful impact 

Click the image here to see the recording. Also see below for Parick's Guest Spot in the February 2020 edition of Sententia.

Article: Five Big ESG Themes for 2020 and the Funds to Capture Them

In this Guest Spot we hear from Patrick Thomas, investment director and head of ESG investing at Canaccord Genuity Wealth Management. As well as outlining the five ESG themes for 2020, he discusses ESG integration - an investment approach that takes into consideration a range of sustainability and ESG-related risks and opportunities in addition to traditional financial analysis.

At the dawn of this new decade, it’s apparent to the world of investing that ESG (environmental, social, governance) is more than just a passing fad. It isn’t the latest cryptocurrency. This signifies to all of us with a sense of ethics about the future of the world and society – a marked shift. A stake in the ground about where we want to invest our money - not only for our own long-term future, but for that of the planet and the good we want it to do.

In 2020, there are some clear ESG trends emerging. So, at the top of the year, what are they and how can we access them?

THEME ONE - growing immediacy of climate change

Unless you’re a contestant on Celebrity Mastermind and think Greta Thunberg is called ‘Sharon’, or you have been on a desert island for the last 20 years, you are probably very much aware of the immediacy of climate change – melting glaciers, rising sea levels, aggressive bush fires, soaring global temperatures, declining numbers of endangered species. 

Environmental issues are always in the headlines, along with scientific reports pointing to the same conclusion: that human-caused climate change is warming the earth - and hopefully the worst effects can still be avoided by drastically reducing greenhouse gas emissions over the next two decades.

Experiencing or reading about extreme weather events is spurring investor concern about climate risk in their portfolios. Increasingly investors want fossil-fuel-free portfolios and the demand to fund climate-change solutions through their investments is growing. And investor sophistication and knowledge about what their money is being channelled into is also increasing. So if you’re a company that has less than sparkly climate change credentials, beware – if investors haven’t cottoned on yet, they will do soon. 

One such example of a fund that is friendly towards climate change is Investec Environmental Opportunities. This fund’s innovative approach identifies businesses whose products are contributing actively to the reduction of carbon emissions. One of the best performing global funds in 2019 managed by a genuine expert in the field, Deirdre Cooper.

THEME TWO: stakeholder consideration over shareholder value at any cost

The corporate world has changed – or has started to – over the last few years. The raison d’etre of listed businesses has always been about shareholder return, often at the expense of everything else. But now companies are realising it’s not the be-all and end-all. Doing the best for all stakeholders, whether they are customers, employees, communities or shareholders is becoming a key consideration. And this in turn drives reputation management and protecting the brand. The more considerate you are as a company, the better reputation you will have – and research has shown that the better your reputation, the better your prospects and the more likely you are to succeed.

The upshot is that ESG investors are making companies think more about stakeholders than just shareholders, because they can direct where their money goes. Money talks and it can have a considerable impact on how companies behave – corporations are more likely to adopt a stakeholder-centric view if they have a base of investor support for it. Of course, funds with sustainable investment strategies vary in their particular approaches, but at some level, most of them are trying to identify companies that are pursuing stakeholder value, avoid those that aren't and engage as shareholders with the ones they own to influence their direction.

One example is Pacific Assets Investment Trust. The underlying companies in this fund are prioritising stakeholders in developing markets through the services and products they offer, such as socially useful consumer products, responsible finance and required infrastructure. It has a strict discipline of only investing in well-governed companies making it a unique approach to investing in Asia. And performance continues to impress.

THEME THREE: increasing importance of the UN Sustainable Development Goals (SDGs)

2019 showed that there is a burgeoning demand for funds that are not only geared towards solving some of the world’s sustainability challenges, but ensuring their underlying portfolio companies are meeting specific criteria aligned to sustainability goals, namely the UN SDGs. This makes the fund’s impact clearly measurable. According to the UN, the SDGs are a blueprint to achieving a better and more sustainable future for all. The 17 goals address the global challenges we face, including those related to poverty, inequality, climate change, justice etc. As a result of the UN SDGs, we have seen thematic fund launches in areas such as clean water, renewable energy and social housing. 

One fund which has the UN SDGs at its heart is Montanaro Better World. This fund was one of the best performing funds in 2019 – its approach involves investing across six diverse themes, each with underlying holdings mapped to the UN SDGs.

THEME FOUR: active ownership taking centre stage

In 2019 we definitely saw a trend for greater support for ESG-related shareholder resolutions and we think the trend for shareholder activism for ESG issues will increase this year. Research shows that in 2019 ESG resolutions drew the support of nearly 30% of the shares voted at the annual general meetings of US companies, the highest level of support ever.

There is also evidence that sustainable investors ramped up their direct engagement with companies in 2019, taking on ESG-related issues like guns, gender equality and climate change. There is a group called the Climate Action 100+ who are activist investors who engage with greenhouse gas omitting companies about aligning their business goals with those of the Paris Agreement – it liaises with these companies to encourage them to put targets in place regarding emissions reduction and plans of how to achieve that.

One example is Hermes Emerging Markets fund. It has one of the best performance records in the emerging market peer group over the past decade and this year has proved no exception. This is a rare fund that has a proven track record of engaging with companies that are actively listening to their stakeholders on ESG issues and improving share price performance as a result.

THEME FIVE: avoiding ‘greenwash’

‘Bandwagonism’ is a common practice in all walks of life and investment is no different. Greenwashing refers to falsely marketing a product as sustainable - many funds over the past few years have started to use terms like ‘responsible’, ‘sustainable’ or make reference to ESG in their literature, but when you dig down and look at the underlying portfolio companies, this isn’t necessarily the case. Deciphering between what is actually an ethical fund and what purports to be isn’t easy. 

We recommend that investors look for meaningful and measurable claims rather than generic statistics. Just as you would be cautious of products making generic claims of ‘100% natural’ or ‘environmentally friendly’ without information as to how or why, place the same scrutiny over your fund. If you see a claim with no verification on the package or the website, then the claim may be misleading. Does the fund have an explicit exclusion for fossil fuels or thermal coal? Or does the fund have a strategy focused on investing in products that benefit the environment?

Think about credentials. Morningstar offers a low carbon designation to portfolios that have low carbon-risk scores and low levels of fossil-fuel exposure. Most of this information is publicly available.

How to avoid this trend…

Single theme funds are interesting in terms of being sure you are invested in companies genuinely offering solutions to the problem. L&G has a range of ETFs buying baskets of companies involved in specific themes such as clean water, cyber security and clean battery technology.

As this fascinating area of investment proliferates, we are sure that other ESG trends will emerge. But as always with investment, remember that diversification is important and pick funds that will help you achieve your own financial goals. You need to keep your wits about you and your focus razor sharp – along with the funds with good intentions, there are the funds that will try and capitalise on those investors who have good intentions. It will be interesting to see what 2020 brings.   

Patrick Thomas is investment director and head of ESG investing at Canaccord Genuity Wealth Management    www.canaccordgenuity.com/wealth-management-uk

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. This is not a recommendation to invest or disinvest in any of the companies or funds mentioned. Names of companies and funds are included for illustrative purposes only.

This webinar was held on 26 March 2020 to help Advisers find out how Structured Products could still deliver attractive rates even with further market falls from the strike date.

Webinar: Responsible Investing with a Track Record

On April 30 2020 Craig Hart from King and Shaxson shared how they can support adviser firms in the construction of ethical investment portfolios for their clients, providing an insight into the due diligence they conduct on funds in the SRI space, and demystifying the misconception surrounding the performance of ethical portfolios. In March this year King & Shaxson celebrated the 10 year Anniversary of their Ethical Model Portfolio Solution. Click the image here for a recording of the webinar.

Article: Responsible Investing with a Track Record

Here at King & Shaxson we have been managing ethical portfolios since 2002, and in March this year we celebrated the 10-year anniversary of our Model Portfolio Service. It’s quite a landmark, and although we’ve always had confidence in the longevity of our offering, it’s great to reach this milestone! I’m not sure how many other MPS with a core responsible or ethical investment mandate have reached this ripe old age.

Ethical Investing isn’t new, we know that, with details of maybe the first ethical screen arising in 1758. Back then exclusions were predominantly driven by faith, but the market has certainly come a long way since then.  

This way of investing is personal to every one of us in the team, and this has been the case ever since our CEO Wayne Bishop started the business back in 2002. We personally invest according to our own ethics, meaning we share the drive and passion with your clients. We believe managing clients’ investments this way is becoming mainstream, and the pressure points with regards to sustainability have never been pushed so hard before.

Changing times

Going back 10 years to when we launched our Model Portfolio Service on the back of advisor demand, the availability of investible assets was limited to say the least. There were some funds out there with a good ethical heritage, but for every fund that passed our screen there was many that did not. That still rings true today, but our investable universe has grown dramatically.

Our product is much more than just a negative screen, as sometimes thought with the word Ethical. Yes, of course we do apply a negative screen to avoid the various ‘sin’ stocks, but here at King & Shaxson we are in fact adding much more to the investment process. Like the market we too have evolved. Whilst screening out sectors such as tobacco, gambling and fossil fuels to name but a few, we implement a positive inclusion, which by its very nature finances solutions to various social and environmental issues. All of which comes on top of the standard investment criteria.

Our Model Portfolios that sit on the Novia platform marry together funds across the spectrum of capital, from responsible investing right through to Impact. We therefore aim to meet the vast majority of investors’ concerns by selecting a broad range of funds that are specific in their goal, whether this is Ethical, SRI, ESG or Impact focused. On top of this, by selecting a wide variety of funds, we are further diversifying the risk of each portfolio; ensuring that exposure to individual companies, specific sectors or fund houses is limited. Our risk adjusted returns versus various conventional benchmarks is highly commendable.

Serious Scrutiny

As part of our ongoing in-house due diligence we conduct an ‘Under the Bonnet’ screen each month that ensures “greenwashing” (where funds that hold stocks that are questionable from an ethical/ESG perspective) are avoided. This thorough screening approach is on top of external research data we have access to, and is paramount to the integrity and longevity of our service.

We pride ourselves on the scrutiny we employ, be it with new funds and/or existing investments. Engagement with various Fund Managers in this area is also very important, and unless the underlying investment is glaringly obvious, we will engage with the fund house and question their rationale for any asset that piques our interest. From that feedback, we will decide on our actions within the investment team.

We feel that education around our solutions is key, therefore we can supply advisor support material, be it questionnaires to aid client articulation of their ethics, through to monthly factsheets and client friendly brochures. We are always keen to meet advisors face to face or via online webinars to discuss our MPS solution available to you.

We have many advisors using our MPS via Novia already and we commit that we will stay true to our heritage and carry on the good work we have done. Our 10 year track record is only just the beginning, and although we are very happy with current performance, we are only as good as our next investment. Here’s to the next 10 years!

For more information please visit our website www.kingandshaxsonethical.co.uk. You can also contact our Asset Management team on 0207 426 5960 or via ethical@kasl.co.uk. Our five fund of fund models are available on Financial Express (FE), please request access.  

Disclaimer

The information contained in this document is for general information purposes only should not be considered a personal recommendation or specific investment advice. Please remember that the value of investments and the income arising from them may fall as well as rise and is not guaranteed. You may not get back the amount invested, especially in the early years.

Company Information

King & Shaxson Asset Management Limited (Reg. No. 3870667) has its registered office at 1st floor, Cutlers Court, 115 Houndsditch, London, EC3A 7BR. The Company is registered in England and Wales and is part of the PhillipCapital Group. King & Shaxson Asset Management Limited (FCA Reg. No. 823315) is authorised and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN.

After a strong equity bull market in 2019, and despite investors estimation that we were in a late cycle environment, many were still positioned for continued growth in 2020 … until the world changed in February! The market drawdown was fast and drastic, catching most by surprise. The subsequent rebound has also been surprising. Given the expected negative impact on corporate earnings, with many countries only just beginning to restart their economies, while others are still waiting to take the full brunt of the pandemic, the macro outlook looks bleak. With this backdrop, what is in store of equity investors and what strategies can work, with so many unknowns, variables and uncertainties?

The Amundi Funds Polen Capital Global Growth Fund has delivered 56.87%(1) excess returns vs MSCI ACWI since its launch in 2015. It currently ranks 11th out of 2362 funds over 5yrs and 12th over 3 yrs in the Citywire Selector Global Equity Category. It is also 5* Morningstar rated, being top quartile in every time period since inception … so how does it do that, why haven’t you heard of it, and should you take a closer look?

Click on the image below to watch a recording of the webinar.

The Amundi Funds Polen Capital Global Growth Fund has delivered 56.87%⁽¹⁾ excess returns vs MSCI ACWI since its launch in 2015. It currently ranks 11^th out of 2362 funds over 5yrs and 12^th over 3 yrs in the Citywire Selector Global Equity Category. 

It is also 5* Morningstar rated, being top quartile in every time period since inception … so how does it do that, why haven’t you heard of it, and should you take a closer look? 

The Global Growth strategy’s goal, is to drive mid-teens earnings growth, for a portfolio of the 25-30 “best businesses” in the world, in the belief that the stock appreciation will follow. The value proposition is to seek double digit returns while taking less risk over time. Fig1 shows how the fund has performed since inception. 

Fig 1

The portfolio characteristics and mentality:

• A highly concentrated, high conviction stock portfolio of the 25-30 “best businesses” in the world, which are globally dominant, difficult to compete with, typically earn revenues in a wide basket of currencies, benefitting from large secular tailwinds and compete from a position of strength
• Long holding periods, to allow compounding of earnings growth of competitively advantaged businesses to work
• “Don’t Loose” mentality, focused on long-term preservation of capital, through margins of safety as well as rigorous portfolio construction limits and discipline

Outcome Oriented through consistent application of the investment process, no market predictions, always fully invested, an unemotional sell discipline and an absolute return mentality

The uniqueness of this strategy is that it invests across the whole “Growth Spectrum”, meaning that the portfolio will hold high growth stocks, with earnings growth in excess of 20% but also stocks that may compound at lower double digits, some of which, may be found in value portfolios. In aggregate however, the earnings growth of the portfolio will be in the mid-teens. Having the “lower” earning stocks, provides a resilience within the portfolio in downturns. The fund’s downside capture ratio since inception has been 71%⁽³⁾. In both 2015 and 2018, when the index was negative, the fund was positive, posting returns which were over 10% above the benchmark. Although 2020 is not yet over, YTD the fund has displayed similar resilience being 836bp ahead of its benchmark⁽²⁾.

Please see Fig 2 & 3 for the performance characteristics since inception^{(2) (3)}.

Fig 2

Fig 3

When compared to the household names of the largest and most prominent global growth equity funds in the UK market, this fund shows up extremely favourably.

So, why have you not heard about it before? Despite the fund’s impressive track record, it has only recently been brought to market by Amundi. Very importantly it has not been available to advisers and DFMs via platforms to date and Novia, is one of the first to on-board it. To mark this launch on the platform, Novia will also be hosting a webinar with the co-PM, Jeff Mueller on the 28^th May at 2pm for a more detailed look at the strategy and insight into the portfolio.

Finally, a few words on Amundi Asset Management and our relationship with Polen Capital. Amundi is one of the 10 largest asset management firms globally⁽⁴⁾ , with over USD 1.676 Tr⁽²⁾ in AUM, operating out of 37 Countries and offering clients a comprehensive suite of investment strategies and solutions, across all asset classes. Polen Capital is a boutique firm, founded in 1979, with US$ 32bn in AUM⁽⁵⁾. Polen has been consistently applying a unique investment methodology for 31 years. Their flagship US strategy, has compounded client assets in excess of 14% per annum ⁽⁵⁾ and forms the basis for this Global Growth strategy. In addition, Amundi is an indirect minority shareholder of Polen Capital via a private equity consortium, since 2015 and seeded this Global Growth Strategy at that time. This has recently been absorbed into the Amundi Funds UCITS umbrella for distribution outside the US.

1 Amundi Funds Polen Capital Global Growth Class I2 (29/01/2015 – 31/03/2020)
2 Source Amundi as at 31/03/2020
3 Risk Analysis figures shown are for the I2 USD share class (Institutional), net performance as of 31/03/2020. 
4 Source IPE "Top 400 asset managers” published in June 2019 and based on AUM as of December 2018
5 Source Polen Capital as at 31/03/2020

The Polen Capital Focus Global Growth Fund has been absorbed by the Amundi Funds Polen Capital Global Growth Fund on November 20, 2018. The CSSF approved the merger and the reintegration of the track record. Past performance is not a reliable indicator of future results or a guarantee of future returns. Please see MSC I disclaimer in the Additional Notes.